View Full Version : U.S. Economy

Freedom Tower
July 31st, 2003, 05:26 PM
Stocks End Higher on GDP Data
Thursday, July 31, 2003

NEW YORK *— Wall Street closed higher Thursday after investor confidence in the economy was boosted by a strong government report showing gross domestic product advanced much faster than expected in the second quarter.

The Dow Jones industrial average ended higher 33.75, or 0.37 percent, to close at 9,233.80. The Nasdaq Composite closed up 14.11, or 0.81 percent, at 1,735.02, while the Standard & Poor's 500 index was up 2.82, or 0.28 percent, to close at 990.31.

The Dow had earlier gained as much as 160 points, but stocks pulled back from sharper gains in the last two hours of trading, a phenomenon that often happens on the last trading day of the month, when portfolio managers make last-minute adjustments to maximize returns and look good to shareholders.

For July, the Dow climbed 2.8 percent, the S&P 500 rose 1.6 percent, and the Nasdaq Composite jumped 6.9 percent.

Volume was heavy with 1.6 billion shares changing hands on the New York Stock Exchange and 1.8 billion traded on Nasdaq.

The main force driving stocks higher on Thursday was new data released by the Commerce Department showing the U.S. economy grew at a brisk 2.4 percent annual clip in the second quarter, driven by a surge in defense spending.

The pickup in gross domestic product, or GDP, from an annual rate of 1.4 percent in each of the two prior quarters, easily beat Wall Street economists' forecasts for a 1.5 percent pace of second-quarter growth.

Also on Thursday, the government said the weekly number of Americans lodging new jobless claims drifted down unexpectedly to the lowest level since February.

The level of new claims, which gives an early reading on the resilience of the job market, edged down by 3,000 in the July 26 week to 388,000 from a revised 391,000 in the prior week, the Labor Department said.

The Purchasing Management Associated of Chicago (search) also reported encouraging economic data. The group's index of area business activity rose to 55.9 in June on a seasonally adjusted basis from 52.5 in May, according to Dow Jones Newswires.

A reading above 50 signals that the manufacturing sector is expanding, while a reading below 50 indicates it is contracting. The July reading exceeded analysts' forecast calling for 53.8.

"The fact that these numbers came in so good, you can only expect there's going to be even better numbers tomorrow," said Jack Francis, co-head of equity trading at UBS.

Friday brings another big batch of economic numbers, including closely watched reports on both the labor market and the manufacturing sector.

Adding to the optimism on Wall Street, several corporate giants reported strong earnings in the second quarter.

Click for List of Earnings

Procter & Gamble Co. (PG), the maker of Tide laundry detergent, Pringles potato chips and about 300 other consumer products, said profit rose as newer products and the weak dollar helped boost sales. Shares rose 12 cents to $87.87 on the New York Stock Exchange.

Exxon Mobil Corp. (XOM), the world's biggest publicly traded oil company, said its second-quarter profit rose on higher oil and gas prices and improved refining margins. Exxon gained 26 cents to $35.58.

Insurer Chubb Corp. (CB) said after the close of trading on Wednesday that its quarterly profit rose 20 percent. Its shares were up 4.6 percent, or $2.90, to $64.80.

CVS Corp. (CVS) climbed $1.04 to $29.99, adding to the $1.20 it gained Wednesday when the drug store company reported second-quarter profits that beat analysts' expectations by a penny a share. On Thursday, Morgan Stanley upgraded CVS to "overweight" from "equal-weight."

Merrill Lynch helped bolster the semiconductor sector after it raised its ratings on a number of companies in the sector, including National Semiconductor Corp. (NSM), which rose $1.59, or 8 percent, to $22.35. The Philadelphia Stock Exchange semiconductor index rose 2.22 percent.

Weighing on the market was Cardinal Health Inc. (CAH), which tumbled after the drug wholesaler's fiscal 2004 earnings forecast disappointed Wall Street. Its shares fell $9.71, or 15 percent, to $54.75.

Consumer products maker Newell Rubbermaid Inc. (NWL) also took a hit after it said its profit fell 17 percent amid weaker retail orders and it cut its earnings forecast for the year. Its shares dropped $4.79, or 17 percent, to $23.63.

The bond market had stock investors on edge again. U.S. Treasury prices crumbled and yields surged to one-year highs. The move fanned fears higher borrowing costs could deflate the housing market — an area of strength in an otherwise soggy economy.

Despite having the lead for most of the session, advancing issues ended up matching decliners on the New York Stock Exchange. Trading volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, rose 3.22, or 0.68 percent, to 4768.02.

Overseas, Japan's Nikkei stock average finished Thursday down 0.7 percent. In Europe, Britain's FTSE 100 gained 0.4 percent, France's CAC-40 rose 1.2 percent and Germany's DAX index advanced 1.3 percent.

Reuters and The Associated Press contributed to this report.

So do you all think the economy is going to start shaping up or this is just hype over nothing?

Freedom Tower
July 31st, 2003, 05:27 PM
GDP Surges on Defense Spending
Thursday, July 31, 2003

WASHINGTON — The biggest surge in defense spending since the Korean War era helped drive U.S. economic growth ahead at a surprisingly brisk 2.4 percent annual clip in the second quarter, the Commerce Department (search) said on Thursday.

The pickup in gross domestic product, or GDP (search), from an anemic annual rate of 1.4 percent in each of the two prior quarters, easily beat Wall Street economists' forecasts for a 1.5 percent pace of second-quarter growth and showed relatively broad-based gains.

It was the most robust expansion in GDP since a 4 percent annual rate of increase in the third quarter of last year and is certain to buttress forecasts from Bush administration officials and private analysts for an economic acceleration in the second half of 2003.

"Growth in the second quarter was boosted by federal defense spending, by business investment in plant and equipment, and by consumer spending," Commerce noted. Spending on defense, much of it to support the war in Iraq, shot up at a 44.1 percent rate — the strongest since a jump of 110 percent in the third quarter of 1951 — after falling 3.3 percent in the first three months of the year.

The dollar's value climbed against other major currencies immediately after the GDP data was issued, in the apparent belief a U.S. economic rebound will outstrip those in other major regions and make U.S. investments relatively more attractive.

Business Spending Revives

Business investment, which has lagged during the slow expansion from the 2001 recession, showed definite signs of revival in the spring quarter.

Nonresidential spending — the broadest category of investment — climbed at a 6.9 percent annual rate in the second quarter after decreasing 4.4 percent in the first three months. It was the strongest advance in investment spending in three years, since a 10.2 percent jump in the second quarter of 2002.

Consumer spending, which fuels two-thirds of national economic activity, added to the second-quarter pace of expansion. Spending, especially on new cars and other costly durable goods, climbed to a 3.3 percent rate from 2 percent in the first three months of the year, and was the strongest since a 4.2 percent increase in the third quarter of last year.

The Federal Reserve, which has cut U.S. short-term interest rates to 45-year lows in a bid to spark a stronger recovery, said on Wednesday it saw signs in June and early July that a more vigorous pace of growth was budding as manufacturing activity grew.

"Several districts noted increased optimism about economic prospects in coming months," the U.S. central bank said in its periodic beige book summary of national economic conditions in the 12 Fed districts, adding it saw "nascent signs of a recovery" in a down-trodden manufacturing sector that has shed an estimated 2.6 million jobs since mid-2000.

Spreading the Word

Treasury Secretary John Snow (search), touring two states in the Midwest in company with Commerce Secretary Don Evans and Labor Secretary Elaine Chao on Tuesday and Wednesday, similarly maintained the economy was "spring loaded" for a more powerful second-half performance with growth rising to around a three percent rate in the third quarter and 3.5 percent by the final quarter this year.

The GDP report showed businesses reduced their inventories of unsold goods at a $17.9 billion annual rate in the second quarter after building them up at rates of $4.8 billion in the first quarter and $25.8 billion in the final three months last year.

Slimmed-down inventories generally are considered promising for the future, since it means companies must quickly ramp up production and potentially hire more employees once stronger demand is firmly established.

August 3rd, 2003, 12:12 AM
All I can say is its still quite bad here on Long Island. Roosevelt Field mall lost over 10 stores since the beginning of the year, it just lost 2 more last week.
Dont see the city doing that well either. Hopefully though things have turned the corner, but the effects always lag in New York and Long Island.

August 3rd, 2003, 07:55 AM
StocksView: Confidence Lags on Wall St.

Sat Aug 2, 8:48 AM ET

By Dick Satran

NEW YORK (Reuters) - Like voters in the nation's most populous state, stock market investors are trying hard to erase the grim memories of the past three years and move forward.

But the reality is that California, and the stock market, might have some hard slogging to go through before things get a lot better. In both cases, a sluggish economy and a crisis of confidence are sapping prospects for a strong rebound.

"Confidence is vulnerable right now," said Robert Shiller, a professor of behavioral economics at Yale University's International Center of Finance. "There's distrust and dissatisfaction with the people on Wall Street -- the talking heads and analysts who kept telling them the market would keep going up when it didn't."

Californians know all about distrust. Facing ballooning budget deficits and economic malaise, they've backed a historic recall election of Gov. Gray Davis (news - web sites).

Wall Street's lack of confidence shows up when investors sit on their wallets -- but the signs are mixed about what hey'll do next. The major averages have climbed now for five straight months, but are still far below their all-time highs.

Few analysts expect stocks to continue the first-half boom, especially after the latest round of corporate earnings appeared suspect, pumped up by one-time gains and cost cuts, and unemployment still near nine-year highs.

Thursday's surprisingly strong 2.4 percent growth in gross domestic product bolstered optimists. John *Bitner, chief economist for Eastern Investment Advisors, said the figures show "we're on the cusp of a stronger recovery." He sees growth rising to 3.5 percent a year -- still moderate but good for stocks, as it doesn't trigger steep gains in interest rates or inflation.

So far, though, the economy hasn't shown the ability to create new jobs, and that's been a source of major concern for investors. Friday's employment data showed overall unemployment falling to 6.2 percent but jobs still disappearing.

The jobs picture is one of the big factors sapping investor confidence, said Shiller. In surveys of investor confidence, he finds investors are increasingly willing to put money into stocks, but not for the long term. Most people still don't trust the market as a long-term investment, he said.

Back in 2000, when stocks were near their all-time peaks, the vast majority of people were true believers, with 76 percent "strongly agreeing" with the statement: "The stock market is the best investment for long-term holders." But that figure declined precipitously since then to just 39 percent this year.


The economy has undermined investor confidence and California politics. California is ground zero of a malaise" that's infected almost every state trying to cope with a cutback in federal funding. The state's whopping budget deficit of almost $40 billion sparked the recall election of Davis.

But there are plenty of economists who see the embattled governor as more scapegoat than perpetrator in the budget crisis. About half of the state's $20 billion deficit can be blamed on lost tax revenues caused by the tech bubble's collapse, says Stephen Levy, senior economist at the Palo Alto, California-based Center for Continuing Study of the California Economy.

The economic downturn has been dramatic in the tech industry. The San Francisco Bay Area lost more than 275,000 jobs in the past three years, or 10 percent of all jobs lost in the recession. In this week's Federal Reserve (news - web sites) "Beige Book" Report on regional economies in the United States, the Bay area was cited as one of three remaining trouble spots nationally.

To be sure, job losses all around the country have battered consumer and investor confidence alike. That helped knock the Conference Board (news - web sites)'s consumer confidence indicator down 10 percentage points on Thursday, pushing stocks downward.

"The fact that the economy has lost 2.5 million jobs is an enormous negative," said Shiller. "It's a confidence destroyer."

Still, Bitner sees the economic recovery finally reaching the level where new job creation will take place and moderate growth will allow stocks to gain 8 percent to 10 percent a year.

"A lot of people have been talking as if the economy will jump up like a coiled spring -- but what I see is something moderate," said Bitner.

California's troubles, he said, are not likely to spill over into the national economy. Still, he sees the legacy of stock market scandals and stock bubbles sparking a different kind of malaise for investors all over America.

"People have to overcome their fear, and they have to see that the government really has clamped down on the stock market excesses. They have to realize that it's safe to go back in the water," Bitner said. The legacy of terror attacks, the sluggish economy and the Iraq (news - web sites) war also continue to shred confidence. "It will take a while to wipe that away."

Copyright Reuters

In the long term, the balooning budget deficit is worrisome.

October 14th, 2003, 01:39 PM
October 14, 2003

Don't Look Down


During the 1990's I spent much of my time focusing on economic crises around the world — in particular, on currency crises like those that struck Southeast Asia in 1997 and Argentina in 2001. The timing of such crises is hard to predict. But there are warning signs, like big trade and budget deficits and rising debt burdens.

And there's one thing I can't help noticing: a third world country with America's recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list.

I'm not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States."

O.K., let's run through some reassuring counterarguments.

First, economists are very good at devising models that would have predicted past crises, but each new crisis tends to happen where and when they didn't expect it. So even though our budget deficit is bigger relative to the economy than Argentina's in 2000, and our trade deficit is bigger relative to the economy than Indonesia's in 1996, our experience needn't be the same.

Second, nasty crises in third world countries have a lot to do with the fact that their debt is in foreign currency, usually dollars. As a result, when the peso or the rupiah plunges, debts explode while assets don't, and balance sheets collapse. By contrast, thanks to the special international role of the dollar, America's burgeoning foreign debt is in our own currency.

Finally, financial markets are generally willing to give advanced countries the benefit of the doubt. Even when an advanced country seems to be deep in a financial hole, lenders usually assume that it will somehow find the resources and political will to climb back out.

So is America safe, despite its scary numbers?

Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can't trust business accounting, and insiders often enrich themselves at stockholders' expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse. Luckily, in America we don't have any of these weaknesses. Oh, wait. . . . (Isn't that all history? No. According to The Wall Street Journal, we are again hearing warnings that "optimism is based on massaged earnings.")

Still, there's no question that the U.S. has the resources to climb out of its financial hole. The question is whether it has the political will.

There is now a huge structural gap — that is, a gap that won't go away even if the economy recovers — between U.S. spending and revenue. For the time being, borrowing can fill that gap. But eventually there must be either a large tax increase or major cuts in popular programs. If our political system can't bring itself to choose one alternative or the other — and so far the commander in chief refuses even to admit that we have a problem — we will eventually face a nasty financial crisis.

The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?

Copyright 2003 The New York Times Company

October 15th, 2003, 01:20 PM

Freedom Tower
October 15th, 2003, 04:18 PM
Actually if anyone's been paying attention the economy has recently started to get back on its feet. Stocks are going up. The unemployment rate hasn't gone up in a while. And President Bush does care about the economy, that's why he issued tax cuts. And they are starting to work. However, maybe he is slow to make new changes to help the economy because anything he does gets criticized from the left.

October 15th, 2003, 04:50 PM
He's afraid to do anything out of fear of criticism?
Even I give him more credit than that.

Freedom Tower
October 17th, 2003, 07:12 PM
Well he has good reason to be afraid of criticism Zippy. Originally he didn't worry about criticism if he knew the cause was just. He went through with the tax cuts, and the war in iraq. He knew that those two things were neceassary and he did them, despite criticism. But criticism of him is getting way out of hand. He is probably realizing that even though things he does may be right, like trying to get rid of affirmative action, he will be criticized severly for doing them. I didn't say he wouldn't do more for the economy, just that it is possible that he will take longer to do things because of fear from criticism. But that is a guess, not a fact. I'm just guessing that he will be slower in making ANY decision because he wants to think about what will be criticized about it first. When Clinton was in office he was hardly ever criticized, despite Waco, Monica, lying to the entire country, and not going after terrorists in 1993. Why is that? I don't know. Clinton should have been criticized much more than he was. President Bush should be criticized a lot less than he is being criticized. IMO liberals are just more dirty in politics. They will attack President Bush on nearly anything, which will most likely slow down any decisions he makes. But that is just my guess for why he hasn't done more than tax cuts, and lower interest rates for the economy. Although those two things are definately improving the economy and preventing it from getting worse.

October 17th, 2003, 11:01 PM
The last time I checked, Clinton was not the president. When things start to go bad, the argument becomes, "Well, he's not as bad as so-and-so."

When Clinton was in office he was hardly ever criticized,

A president who is afraid of criticism is not presidential. Bush did not fear criticism two years ago because he wasn't getting any. He was riding his huge bump in popularity because of the terror attacks. Democrats were politically afraid to voice opposition (to their discredit). Now that his popularity is back down to reasonable levels, his administration is politically vulnerable.

I have said before that the war in Iraq would become a political and economic issue. Now we are stuck for the long haul. Iraq has replaced Afghanistan as the base for terrorism. A cleric set up his own Islamic government in the south. The death toll since Bush declared hostilities over is 100. Bush blames the press for the negativity. It appears that we are finally getting the idiot we elected.

Freedom Tower
October 18th, 2003, 10:32 AM
And the clinton thing was a point. It doesn't matter whether or not he is in office now. I'm comparing the two parties. Because the TV news has a liberal slant when clinton was making bad choices they didn't criticize him. When President Bush makes a GOOD choice, they find something bad about it. It's a double standard I'm talking about. You or another liberal has probably criticized a past Republican President at one time or another, and I bet you no one said "Well he isn't the presidnet anymore so it doesn't count." That is another double standard because when I criticize a past democratic president, which is my right, I am told not to.

October 18th, 2003, 01:01 PM
That is another double standard because when I criticize a past democratic president, which is my right, I am told not to.
I am sorry that you have problems with reading comprehension. I was expressing my opinion that it's not relevant to this discussion. No one told you not to do it.

When President Bush makes a GOOD choice, they find something bad about it.
You're just going to have to accept the fact that some people think they are BAD choices.

You or another liberal has probably criticized a past Republican President at one time or another, and I bet you no one said "Well he isn't the presidnet anymore so it doesn't count."
I would appreciate it if you would limit your criticisms to statements I have actually made in this forum (you seem to be having enough trouble with that), and not guess at statements you think I may have made in the past.

Bush still has Fox News and that rag the NY Post - who seemed to have problems figuring out who won the Yankee-Red sox game.

October 20th, 2003, 09:30 PM
As long as Zippy brought up Iraq, I think we may need to readdress the issue of "why did we ever get involved."

The original choice on Iraq was to either A) Leave sanctions in place, continue to pressure Saddam Hussein; B) Lift sanctions, and let Saddam rejoin the world community on his own terms, or C) Go in guns blazing, and get our hands dirty, remove Saddam, and face the consequences.

Choice A was rapidly becoming politically unacceptable. Europe and Russia were clamoring to lift sanctions, so that they could recover billions in loans to Saddam and dormant oil investments. Saddam was lobbying hard to have sanctions lifted, claiming he didn't have weapons of mass destruction.

Choice B was virtually unthinkable. Given an enormous resource base that is Iraq's oil reserves, Saddam with his hands untied could recreate his WMD program from scratch in 3-4 years, tops. Then we would REALLY have some fun.

It is obvious that choice C was the only plausible solution. The fact that Saddam didn't actually possess WMD is moot. In fact, it is precisely because he did not yet have those weapons that we were able to attack him with impunity in the first place. Given more time and and a lax enforcement policy, Iraq would not take long to turn into a North-Korea-like mess.

I will not deny that the Bush administration bungled the diplomatic effort that accompanied the war with Iraq. They should have told it like it was, and not relied on bogus terrorism and WMD claims. However, that does not negate the fact that the war was necessary.

It is, of course, unfortunate that over 100 american soldiers have died since the official end of the war, as announced by Bush. However, we should also keep in mind that 100 is a very low casualty rate for an occupation of this size (140,000 troops), and is probably right up there with the rate at which those soldiers would die in traffic accidents at home.

To all those, who would call for an early return of American troops, remember the lessons learned from Somalia. Because Americans turned tail and ran at the first whiff of casualties, the emboldened terrorists decided that they can strike us with no fear of retribution.

October 20th, 2003, 10:14 PM
Choice C is the obvious choice among the three, but there was a fourth:

D. Gradual escalation. There was no immediacy as the public was led to believe. As a result of the rush for a spectacular military victory, no real planning was made for the aftermath.

The war, coupled with the tax cuts, has become a huge political and economic issue.

and is probably right up there with the rate at which those soldiers would die in traffic accidents at home.

Freedom Tower
October 21st, 2003, 11:10 PM
"To all those, who would call for an early return of American troops, remember the lessons learned from Somalia. Because Americans turned tail and ran at the first whiff of casualties, the emboldened terrorists decided that they can strike us with no fear of retribution."

Even though I said I wouldn't bother posting, I couldn't help but agree with that statement made by euGENIUS. Not to mention how the anti-war protesters only bolstered the morale for Saddam and his goons. The anti-war and "pull-back the troops" movements also screwed up Vietnam. We, believe it or not, had killed a lot more North Vietnamese then we lost in Americans but then on days people protested bombing raids would stop. The war wasn't fought with full effort becuase there was so much criticism of it. The more the war is criticized the worse it is going to turn out.

October 21st, 2003, 11:33 PM
Please don't drift too far off topic. The Iraq war has a connection to the economy. The Vietnam war doesn't. If you wish to give your view on Vietnam, open a new thread. I'm sure it'll be a beaut.

Freedom Tower
October 22nd, 2003, 05:16 PM
I'm just saying that the more people publicly go against the war, the worse off consumer confidence is, then the worse off the economy is. If you really want something to blame its not the war, its the people who say the war isn't going well. I'm not saying the war doesn't have problems, there are problems in every war obviously. But look, we aren't seeing death tolls in the tens of thousands as in Vietnam or in the millions like WWII. Although any coalition or civilian death is tragic, the numbers are a lot lower than they could be.

October 22nd, 2003, 06:54 PM
I'd be ready to go toe-to-toe with you if you open a thread on Vietnam.

October 23rd, 2003, 07:44 PM
The difference between those other wars and Iraq, from an economic standpoint, is that taxes were not lowered while they were being fought. Despite the huge cost, America emerged from WWII in good economic condition.

Freedom Tower
October 24th, 2003, 04:33 PM
WWII was a much larger war. That means that we had to purchase MANY MANY more tanks. And we had to keep purchasing them because they kept getting blown up. In Iraq, although we are losing some lives and equipment they don't even come close to approaching the numbers lost in WWII. Plus so many people were drafted for WWII that the unemployment was very very low since jobs at home had less people to hire. Pretty much everyone was employed back then. This war is different. We didn't send millions of troops over there. So we didn't lose millions of employees who need to be replaced. If we did than unemployment would be very low and there'd be less of a need for tax cuts. There'd be less of a need for tax cuts because there'd be more purchasing going on. Between the war supplies and the people with jobs. Now there isn't as many war supplies needed and more unemployed because less troops were sent overseas. Because of that we do not have a high demand for goods and therefor tax-cuts will create that demand.

October 24th, 2003, 10:05 PM
The word you overlooked is emerged. That means the end of the war, when those millions of troops came back home and re-entered the job market.

So far, the tax cut has not created one job, but it has created a record deficit, and the interest payments on that deficit will cut into future spending.

Freedom Tower
October 24th, 2003, 11:16 PM
When they came back from World War II, the demand for houses was very high. That added jobs in construction. Not to mention cars they wanted which added to manufacturing. Also, the tax cuts aren't supposed to directly create jobs. They create jobs indirectly. The tax cuts entice more spending, which is also an increase in sales. That sales increase will make businesses stop laying people off and start hiring new employees. So yes the tax cuts have created MANY jobs, and stopped many others from being lost. Just that it did not happen directly. There is no way to prove that but to show that spending has increased. And if not increased at least the spending stopped slipping as fast as it was slipping before. Had there been no tax cuts I'm afraid to know what the economy would be like right now.

October 25th, 2003, 08:51 AM
I understand how tax-cuts are supposed to work.

Total retail sales in the US dropped last month.

I've already given my opinion on this, but again - tax cuts in the environment of high unemployment are not a stimulus to consumer confidence. Bloomberg (who I'm sure knows more about economics than both of us) speaks of jobs and fiscal policy here:


Freedom Tower
October 25th, 2003, 11:43 AM
I know sales went down, but sales probably would have dropped MORE than they did if there were no tax cuts. And it's true that tax cuts don't do much for confidence. However, increased sales, resulting from tax cuts should help confidence. And if sales dropped more than they did, which would be likely with no tax cuts at all, confidence would be lower too. So tax cuts aren't necesarily "not working", they are just beginning to turn the economy around. It will probably take a month or so before we really notice a difference from them. I am going to read your link now, in the meantime look at this one. www.cnn.com/2003/TECH/biztech/10/22/industrial.robots.ap/index.html

Freedom Tower
October 28th, 2003, 05:01 PM
Conference Board Consumer Confidence Index Jumps in Oct.

Tuesday, October 28, 2003

NEW YORK — Signs of improvement in the job market triggered a rebound in a measure of consumers' confidence in the economy in October, a private research group reported Tuesday.

After posting a decline in September, the Conference Board (search) 's Consumer Confidence Index (search) jumped to 81.1 in October, up from a revised 77.0 in September. The reading was well ahead of the 80.0 that analysts had been expecting.

Lynn Franco, director of the board's consumer research center, said a brightening job market was a "major factor" in the rebound, as was growing hope that employment trends would continue to improve.

"With the holiday season around the corner, this improvement in consumers' spirits is a good omen for upcoming retail sales," Franco said.

The report was released the same day that the Commerce Department (search) delivered another dose of good news for the economy with a report showing that new orders for durable goods rebounded in September. The figure, which rose by 0.8 percent, reflected stronger demand for a wide variety of goods, including cars, communications equipment and machinery.

The positive economic news helped send stocks higher on Wall Street. The Dow Jones industrial average rose 54.15 points to 9,662.31 in morning trading.

The Conference Board's indexes were derived from responses received through Oct. 21 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday include responses from at least 2,500 households. The figures for September were revised after all the surveys were tabulated.

The Conference Board also reported that an indicator measuring consumers' appraisal of current economic conditions rose in October following five consecutive months of decline. That measure, the Present Situations index, jumped to 66.8 from 59.7 last month.

Consumers' short-term business outlook and the outlook on job conditions also improved. Those expecting business conditions to improve over the next six months rose to 23.2 percent from 21.3 percent, and slightly fewer respondents expected conditions to worsen. Those expecting jobs to become available in the next six months increased to 19.7 percent from 16.6 percent.

Economists keep a careful watch on indicators of consumer confidence since spending by consumers makes up approximately two-thirds of U.S. economic activity. The improvement in the indicator could be a good sign for major retailing companies just ahead of their critical holiday shopping season.

The Conference Board's measure of consumer confidence has fluctuated since April, when it rebounded following the end of major military operations in Iraq. Before that, it had been declining steadily since spring 2002.

Freedom Tower
October 28th, 2003, 05:02 PM
Durable-Goods Orders Bounce Back in September

Tuesday, October 28, 2003

WASHINGTON — America's factories saw orders for big-ticket goods rebound in September, a fresh dose of good news for manufacturers and a harbinger of better times ahead for the economy as a whole.

The Commerce Department (search) reported Tuesday that new orders for "durable goods" — costly manufactured products expected to last at least three years — rose by 0.8 percent last month. The figure reflected stronger demand for a wide variety of goods, including cars, communications equipment and machinery.

The bounce-back in demand comes after new orders for durable goods dipped by 0.1 percent in August, according to revised figures.

Although September's increase was slightly weaker than the 1 percent advance that some economists were forecasting, August's dip was revised Tuesday to show a much smaller decline than the 1.1 percent drop initially reported.

The 0.8 percent rise registered in September was the best showing since July, when new orders for durable goods went up by 1.6 percent.

Excluding orders for transportation equipment (search), which can swing widely from month to month, all other orders for durable goods rose by 1.2 percent in September, marking the fifth consecutive monthly increase.

Tuesday's report is consistent with a Federal Reserve (search) report and some other recent data showing improvement in the manufacturing sector. Factories were hardest hit by the 2001 recession and have struggled the most to get back on firmer footing.

Manufacturers have not only suffered from economic hard times at home and abroad but they also have had to compete with a flood of imported goods flowing into the United States. The situation has contributed to millions of manufacturing job losses in the last three years.

Shipments — a good barometer of current demand — rose by 2.5 percent in September, a turnaround from the 2.6 percent drop posted in August.

New orders for cars, meanwhile, rose 7.6 percent in September, the largest increase since January, and an improvement from the 7.1 percent decrease seen in August.

For communications equipment, orders rose 5.8 percent in September, compared with a 2.2 drop the month before. Orders for machinery increased 1 percent, after a 0.2 percent dip in August. For electrical equipment and appliances, orders went up 1.4 percent in September, on top of a 0.9 percent gain.

However, orders for fabricated metal products, primary metals, which includes steel, and computers went down in September.

Freedom Tower
October 28th, 2003, 05:03 PM
Sales of durable goods are up and confidence is up too. The economy is starting to improve. Lowering the unemployment rate may take a bit longer though.

Freedom Tower
October 30th, 2003, 04:03 PM
GDP Jumps 7.2 Percent, Biggest Increase in Nearly 20 Years

Thursday, October 30, 2003

WASHINGTON — The economy grew at a scorching 7.2 percent annual rate in the third quarter in the strongest pace in nearly two decades. Consumers spent with abandon and businesses ramped up investment, compelling new evidence of an economic resurgence.

The increase in gross domestic product (search), the broadest measure of the economy's performance, in the July-September quarter was more than double the 3.3 percent rate registered in the second quarter, the Commerce Department (search) reported Thursday.

The 7.2 percent pace marked the best showing since the first quarter of 1984. It exceeded analysts' forecasts for a 6 percent growth rate for third-quarter GDP, which measures the value of all goods and services produced within the United States.

The economy's recovery from the 2001 recession has resembled the side of a jagged cliff; a quarter of strength often has been followed by a quarter of weakness. But analysts are saying that pattern could be broken, considering increasing signs the economy finally has shaken its lethargy and is perking up.

Near rock-bottom short-term interest rates, along with President Bush's third round of tax cuts, have helped the economy shift into a higher gear during the summer, economists say. The next challenge is making sure the rebound is self-sustaining, they say.

Democrats, however, argue that the tax cuts contributed to a record budget deficit in the recently ended 2003 fiscal year and have done little to spur significant job growth.

Although the nation's payrolls grew by 57,000 in September — the first increase in eight months — the economy needs to add a lot more jobs than that each month to drive down the 6.1 percent unemployment rate, analysts have said.

The administration has argued that as economic growth improves, meaningful job creation will follow. Bush will be counting on that as he heads into the 2004 presidential election season.

In other encouraging economic news from the Labor Department (search), new claims for unemployment benefits last week dropped by 5,000 to 386,000, a sign that layoffs are slowing. U.S. workers' wages and benefits went up by 1 percent in the third quarter, up slightly from a 0.9 percent increase in the previous quarter.

Amid signs that the recovery is regaining traction, the Federal Reserve (search) on Tuesday decided to hold a key short-term interest rate at a 45-year low of 1 percent. Super-low short-term rates may give consumers and businesses an incentive to spend and invest more, boosting economic growth.

Economists believe the economy will grow at a slower — but still healthy — 4 percent rate in the final quarter.

In the third quarter, consumers ratcheted up their spending at a brisk 6.6 percent annual rate. That was the biggest increase since the first quarter of 1988 and was up from a 3.8 percent pace in the second quarter.

Consumers in the third quarter spent lavishly on big-ticket items, such as cars, boosting such spending by a whopping 26.9 percent rate. And, they also spent briskly on "nondurables" such as food and clothes, which grew at a 7.9 percent pace, the strongest showing since the first quarter of 1976.

While consumers have been the main force keeping the economy going, there are more signs that businesses are starting to do their part.

Especially encouraging was the 15.4 percent growth rate in spending by businesses on equipment and software in the third quarter. That marked the largest increase since the first quarter of 2000 and was up from a 8.3 percent growth rate in the second quarter.

Sustained turnarounds in capital spending and in hiring are crucial to the economy's return to full throttle. Economists said business wants profits to improve and wants to be sure of the recovery's vigor before it goes on a spending and hiring spree.

The red-hot housing market, powered by low mortgage rates (search), also contributed to the strong showing on third quarter GDP. Investment on residential projects grew at a 20.4 percent rate, the biggest increase since the second quarter of 1996, and more than three times the 6.6 percent growth rate seen in the second quarter.

Federal government spending, which grew at a 1.4 percent rate, was only a minor contributor to GDP in the third quarter. Spending on national defense was flat. But in the second quarter, military spending on the Iraq war — which grew at a whopping 45.8 percent rate — helped to catapult economic growth.

A better trade picture in the third quarter also contributed to GDP growth.

But inventory reduction by businesses continued to be a drag on the economy and reduced third-quarter GDP by 0.67 percentage point. And a continuing reluctance by businesses to build up stocks suggest that executives remain wary of the rebound's staying power.

October 30th, 2003, 04:39 PM
Sez who?

October 30th, 2003, 04:48 PM
Associated Press, I believe. In the future, please cite your sources.

Freedom Tower
October 30th, 2003, 11:00 PM
I usually get my stuff from www.foxnews.com I am pretty sure it is there. Usually the source pastes with it. Guess I have to start double checking.

January 4th, 2004, 08:43 AM
January 4, 2004

Bush's Budget for 2005 Seeks to Rein In Domestic Costs


WASHINGTON, Jan. 3 — Facing a record budget deficit, Bush administration officials say they have drafted an election-year budget that will rein in the growth of domestic spending without alienating politically influential constituencies.

They said the president's proposed budget for the 2005 fiscal year, which begins Oct. 1, would control the rising cost of housing vouchers for the poor, require some veterans to pay more for health care, slow the growth in spending on biomedical research and merge or eliminate some job training and employment programs. The moves are intended to trim the programs without damaging any essential services, the administration said.

Even with the improving economic outlook, administration officials said, the federal budget deficit in the current fiscal year is likely to exceed last year's deficit of $374 billion, the largest on record.

The Congressional Budget Office and the White House budget office have projected a deficit of more than $450 billion this year.

But Joshua B. Bolten, director of the White House Office of Management and Budget, has said the president's policies will cut the deficit in half within five years, through a combination of economic growth and fiscal restraint.

Mr. Bush's budget request, to be sent to Congress by Feb. 2, includes several tax cut proposals, including new incentives for individual saving and tax credits to help uninsured people buy health insurance. The Democratic candidates for president have accused Mr. Bush of doing little to halt the recent rapid increase in the number of uninsured.

Administration officials said the president's budget would call for an overall increase of about 3 percent in appropriations for so-called domestic discretionary spending, which excludes the Department of Homeland Security, the Defense Department and insurance benefits like Medicare and Medicaid.

As he completes work on his budget, Mr. Bush faces criticism from conservatives, who say he has presided over a big increase in federal spending, and liberals, who say his tax cuts have converted a large budget surplus to a deficit.

Total federal revenues have declined for three consecutive years, apparently the first time that has happened since the early 1920's. But in those years, from 2000 to 2003, total federal spending has increased slightly more than 20 percent, to $2.16 trillion last year.

Brian M. Riedl, an economist at the conservative Heritage Foundation, said: "President Bush is not focusing on his fiscal conservative base right now. He's trying to position himself in between conservatives in Congress and the Democratic Party. It may be good politics, but it's bad policy, a lost opportunity to get runaway government spending under control."

White House officials deny that they have acquiesced in a domestic spending spree. They insist, as do some liberal advocacy groups, that appropriations for domestic programs are not exploding.

Such spending, they say, will increase 3 percent in 2004, after increases of 5 percent in 2003, 6 percent in 2002 and 15 percent in 2001. Moreover, they say, increased corporate profits should lead to an increase in corporate tax payments, lifting revenues in the coming years.

Richard Kogan, a budget analyst at the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group, said the increase in military and domestic security spending in the last two years dwarfed the increase in domestic discretionary programs, which did not quite keep pace with inflation.

"The increases for defense, international affairs and homeland security have been much greater — and thus have played a much larger role in the return to deficits — than the increases for domestic appropriations," Mr. Kogan said.

Housing officials said the administration was alarmed at increases in the cost of vouchers, which provide rental assistance to low-income families, and would take steps to prevent local housing agencies from issuing more vouchers than Congress had authorized. Congress has tentatively decided to provide $14.2 billion for renewal of vouchers this year, an increase of about 15 percent.

Federal officials said they would also require families seeking housing aid to help the government obtain more accurate information on their earnings. As a condition of receiving aid, families would have to consent to the disclosure of income data reported to a national directory of newly hired employees. The directory was created under a 1996 law to help enforce child-support obligations.

Administration officials said the president's budget would also slow the growth of spending at the National Institutes of Health, which doubled in the last five years, reaching $27.1 billion in 2003. Congress has tentatively agreed to provide $28 billion this year, slightly more than Mr. Bush requested, and administration officials said they would seek an increase of 3 percent or less for 2005.

Budget officials defended the proposal, saying they wanted to be sure the agency was properly managing a huge infusion of federal money.

Mr. Bush proposed last year to double co-payments on prescription drugs for many veterans, primarily those with higher incomes and no service-connected disabilities. The White House reaffirmed its support for that proposal in November.

In the last week, the Pentagon has been considering a new proposal to increase pharmacy co-payments for retirees with at least 20 years of military service. Under the proposal, the charge for a generic drug would rise to $10, from $3, while the charge for a brand-name medicine would rise to $20, from $9.

The Military Officers Association of America criticized this as "a grossly insensitive and wrong-headed proposal." In e-mail messages to the White House, members of the association asked Mr. Bush, "Why do your budget officials persist in trying to cut military benefits?"

Col. Steven P. Strobridge, director of government relations at the association, said he understood that the Pentagon was now inclined to study the issue for a year and renew the proposal, as part of a systematic effort to "reduce military health care costs."

Administration officials said they expected Mr. Bush to seek increases of $1 billion, or 10 percent, for the education of children with disabilities and $1 billion, or 8 percent, in Title I grants for schools with high concentrations of students from low-income families.

Budget officials said they were concerned that they did not have enough money for Pell grants to keep pace with a recent surge in low-income students seeking help with college costs. They said Mr. Bush would address that problem in some way, without seeking an increase in the maximum grant, now $4,050.

The budget also seeks money to train more nurses, to encourage sexual abstinence among teenagers and to recruit "volunteers in homeland security," who can respond to emergencies, including terrorist attacks.

Copyright 2004 The New York Times Company

January 4, 2004

The Joyless Recovery



THE stock market is surging and the economy appears to be booming, but Judith Pike is getting out of business. "I'm finished; I'm out of here," said Mrs. Pike, owner of Acme Grinding, whose customers have been vanishing and whose work force has shrunk from 40 to 4. Two days before Christmas, Mrs. Pike sold her business and more than 40 machines used to grind and finish metal parts. "It will be for pennies on the dollar," she said. "Less than what it cost to buy just one of these machines."

Considering that nearly every scrap of data suggests that the American economy has finally climbed out of the doldrums and is humming at its fastest pace in at least four years, Mrs. Pike's timing may seem unfortunate. But here in Rockford, and in the nation as a whole, factory owners like her have seen their worlds turned upside down. And their struggle goes a long way toward explaining why this continues to be such a joyless recovery.

More than 11,000 jobs have disappeared in and around Rockford in the last three years, and many of those are not expected to return. Motorola shut down a big repair plant not far from Mrs. Pike's company last year, eliminating more than 1,000 jobs, even as it invested $1.9 billion in a new electronics factory in China. Textron is closing several factories that make metal fasteners. And industrial parks are swimming in "for sale" and "for lease" signs.

"We've been through downturns before, but this time it's different," said Malcolm Anderberg, owner of Dial Machine Inc., which does contract manufacturing. "This time, the work is leaving the country, and it's not coming back."

In part, this is an old story - and one not unique to Rockford. Manufacturers have been shedding jobs in the United States for decades, moving plants to low-wage countries or squeezing ever more production from fewer workers at home. But the process accelerated recently, with manufacturers trimming a whopping 2.8 million jobs over the last three years alone. A study published in August by the Federal Reserve Bank of New York concluded that more than half of those job losses stemmed from structural changes and were likely permanent.

History leaves little doubt that new jobs will eventually replace the old, and that workers' incomes can still rise. But the outlook for the short and medium term remains grim. This is the second "jobless recovery,'' the first having occurred after the slowdown in 1990 and 1991. Before then, factories in cyclical industries had tended to be the biggest source of employment gains once the economy began to revive. Now the bounce has to come from other areas. And this time, even those sectors have been less than gung-ho about hiring.

Still, Rockford has become a case study of how an industrial area can respond to a shifting economic landscape. This city has long been synonymous with manufacturing. It has scores of automobile suppliers, tool-and-die makers, machine-tool producers and small companies that provide contract manufacturing services. The unemployment rate is nearly 11 percent in the city and about 8 percent in the surrounding Rock River Valley, much higher than the national average of 5.9 percent.

But the news is not all bleak. Confronted with the choice between adapting or dying off, Rockford has tried to reinvent itself. "We are in a global economy, and we are in the throes of a major transformation," said Robert Levin, executive director of the Council of 100, a business-promotion group here.

Rockford's sprawling airport, which has almost no passenger traffic, has become a fast-growing cargo handling center. United Parcel Service employs 1,500 people there, making the airport its second-largest hub, after Louisville, Ky. All told, 3,000 people work at the airport, which handled 1.4 billion pounds of freight last year.

Telephone call centers just outside town employ about 5,000 people, mostly part-time workers who earn about $10 an hour. The pay is lower than in most factories, and many people worry that even these jobs will be pulled away to the fast-growing call centers of India or the Philippines. But MCI, the long-distance carrier, has built a center with more than 1,000 workers and is still hiring.

Rockford is also becoming a bedroom community. New housing developments are attracting people from Chicago's western suburbs, about 70 miles away. (The prospect of four-bedroom homes for $169,000 seems to make the commute more tolerable.) Reflecting the influx, Wal-Mart, which already owns one big store outside town, is building two more in the area. Target and Home Depot are each opening a second store in the area as well.

So far, none of this has come close to filling the void left by the loss of manufacturing jobs. The big question is whether the remaining industries also transform themselves or move away entirely. The answer could determine the shape of the economic expansion in the months and years ahead.

THOUGH more extreme than in some other parts of the country, Rockford's unemployment problems fit in with a broader national trend. Like their counterparts elsewhere, many executives here are increasingly confident that business is picking up, but they are also reluctant to hire extra workers. Companies are either convinced that they can extract more productivity from the employees they already have or are worried that they will be overstaffed if the expansion turns out to be another false start.

Most evidence suggests that the economy is moving into high gear after one of the feeblest recoveries in history. Economic growth soared at an annual rate of 8.2 percent in the third quarter of 2003, and economists say they think it will climb nearly 4 percent this year.

Business spending, the weakest component of the economy more than a year after the recession officially ended, is now growing rapidly. Orders for new equipment shot up at the fastest pace in 20 years in December, rising for the sixth month in a row, according to a survey by the Institute for Supply Management that was released on Friday. Industrial production jumped 0.9 percent in November, the third increase in a row and the biggest in four years, according to the Federal Reserve. Perhaps most encouraging, the increases were spread across most sectors of industry.

Despite all the good news, employment continues to climb much more slowly than in previous recoveries. Many people took heart when the Labor Department reported that the economy added a total of 236,000 jobs in September and October. But just 57,000 jobs were created in November, and most employers remain cautious about expanding their payrolls.

Given the growth of the working-age population, the nation needs to add around 250,000 jobs a month to achieve a significant decline in unemployment before the November election. Economists are skeptical that job creation will hit that pace, in part because companies of all types have been getting ever more work out of the same number of workers.

Productivity climbed at an annual rate of 9.4 percent in the third quarter of 2003, and it has risen at an annual rate of 5 percent for the last several quarters. If the pace continues at anywhere near that level, the economy would have to grow by far more than 4 percent a year to bring down the jobless rate.

China is the other big factor. Lobbyists for manufacturers attribute many of their woes to that nation, which is running a trade surplus with the United States of roughly $125 billion. But a large percentage of Chinese imports come from subcontractors of American manufacturers, which are themselves trying to take advantage of China's low costs.

Whether jobs are being lost to China or merely to higher productivity, many companies remain nervous about hiring even if business is picking up. "It's busier for us than it has been for the past four years," said Eric Anderberg, general manager of Dial Machine and the son of the founder. "The problem is, there's nothing that gives me the sense of a sustained recovery."

FOUNDED in 1890 at the dawn of the automotive era, Rockford Powertrain, a maker of transmission equipment for heavy-duty trucks, is still profitable and exports its products all over the world. But these days, it does little manufacturing. Its main business is logistics.

"We want to stay in Rockford," said Thomas M. Corcoran, the company's president. "We just don't want to manufacture here."

Over the past decade, Rockford Powertrain has stopped producing most of its components at home and started buying almost all of them abroad - from South Korea, Poland, Germany and, most of all, China. The number of employees in Rockford has dropped from 800 in 1988 to 250, and the work is limited largely to assembly, quality control and management.

In October, Mr. Corcoran took his international plans further, selling what he called a "substantial minority stake" in the company to the Wanxiang Group, one of China's largest auto parts suppliers. The deal, he said, will give him more reliable access to a major Chinese supplier and to the booming Chinese market.

There may be more deals like that to come. Given the globalization of both suppliers and customers, he said he could imagine selling off additional stakes to investors in India, Germany and other countries.

Rockford Powertrain still occupies a 625,000-square-foot factory here, but that, too, is changing. Two weeks ago, Mr. Corcoran agreed to sell the plant and lease back about half the space until he can move the company to a smaller and more appropriate location. "The plant was designed for a different business model," Mr. Corcoran said. "We don't need that much space today."

Rockford Powertrain is but one example of a broader shift away from domestic manufacturing, a trend that appears to have accelerated sharply since the economic downturn in 2001. Intense global competition is expected to force factories to keep squeezing their work forces and to focus tightly on areas where they have a special technological edge or can offer highly customized services. Even if some manufacturing companies remain vibrant, they are not expected to supply many new jobs, and the real economic growth will continue to come from services.

"The relative decline in manufacturing employment is real, as is the decline in the manufacturing share of national income," said N. Gregory Mankiw, chairman of the White House Council of Economic Advisers, in a speech last month.

Mr. Mankiw compared the trend in manufacturing to that in farming over the last century. Farm production has increased, but the proportion of people working in agriculture has dropped from 40 percent a century ago to 2 percent now.

"Both job creation and job destruction are part of the process by which countries gain from trade," he said. "Free trade encourages each country to specialize in what it does best. It thereby raises national incomes both at home and abroad."

In Rockford, industry is far from dead. But business has been transformed, often with great pain. One of the few thriving metalworking industries here is the business of scrap metal - mainly because of voracious demand from Chinese steel mills. Some of the metal is discarded industrial machinery from factories that have closed.

"China has a need for a tremendous amount of raw material," said Bill Day, chief financial officer at Joseph Behr & Sons, a large trader in scrap metal here.

Generally, production at home is becoming less important than logistics and shipping. Companies that once sold easy-to-replicate products to nearby car companies are being bypassed by distant rivals in China. "We have lost our technological edge, our pricing edge and in many cases our quality advantage," said Eric Anderberg of Dial Machine, testifying before a recent panel on manufacturing that was convened by the Commerce Department.

Carl Bradberry, owner of a small machining shop near Rockford called S&B Jig Grinding, produces machine parts engineered to a precision of less than the diameter of a human hair. Mr. Bradberry took out a second mortgage on his vacation cabin to keep the company going, and in November he saw his first profit in nearly four years. But even now, many of his machines are idle.

Increasingly, the companies that survive are those that function like boutiques. They offer specialized products with unusual craftsmanship, and they deliver on short notice.

North American Tool, which makes precision tool parts, was able to retain its 100 employees over the last three years and is now beginning to have a solid pickup in demand. But it specializes in customized parts ordered by the dozens rather than the thousands, and it has shrunk its delivery time on most orders to just one day. Even with all that, company executives say they must constantly look for new market niches or the next idea.

"The good old days are gone for good," said Roger K. Taylor, the chief executive. "I don't know what our company will be doing in two years, but it will almost certainly be different from what it looks like today."

Here is Robert O'Brien's next big idea: nonstop passenger flights between Rockford and Budapest. As in Hungary.

Far-fetched? Not necessarily. As executive director of the Northwest Chicagoland Regional Airport, Rockford's sprawling but underused airport, Mr. O'Brien is confident that this region is on the verge of becoming a major logistical center.

Though it is big enough to handle Boeing 747's and military transport planes, the airport has become so overshadowed by O'Hare International in Chicago that it has had virtually no passenger air service for more than a decade.

But rather than go out of business, the Rockford airport has turned itself into a busy cargo center. In addition to the U.P.S. hub, the airport also houses some operations of BAX Global and DHL, two other big shipping concerns.

That transformation mirrors a strategic shift for the Rock River Valley area. Manufacturing is either stagnant or in decline, but transportation and logistics are booming. In the town of Rochelle, 30 miles to the south, the Union Pacific Corporation has built a new "intermodal" transportation center that it hopes will become a major transfer point for truck and rail cargo.

Local officials say they have a big opportunity to steal cargo business from Chicago. "I think we're sitting on top of a gold mine," said Mr. O'Brien, the airport executive.

BUT even with the increase in cargo traffic, he said the airport was still operating at less than 10 percent of its capacity. So he and other local leaders want to resurrect passenger air service.

Knowing they had no chance to compete against O'Hare on flights to most American cities, they decided to focus on specialty routes and little-known airlines. In August, TransMeridian Airlines, a small charter company, started regular flights to Las Vegas and Orlando, Fla. The service has carried about 11,000 passengers so far, Mr. O'Brien said.

Now he is pushing a deal with Malev, the Hungarian airline, to offer regular nonstop flights between Rockford and Budapest. Demand for that route may seem limited, but Rockford officials say Malev would attract tens of thousands of American travelers who would use Budapest as a low-cost jumping-off point to the rest of Europe.

Mr. O'Brien envisions Rockford playing host to an array of low-cost airlines, domestic and international, that would offer travelers low prices in exchange for destinations that are slightly less convenient.

Last month, Rockford officials welcomed Hungary's ambassador to the United States and executives from Malev. The Hungarians said they were intrigued, but they have not yet bought into the idea.

If they do not, Mr. O'Brien says, he has other deals in the works.

Copyright 2004 The New York Times Company

January 7th, 2004, 10:11 PM
January 8, 2004

I.M.F. Says Rise in U.S. Debts Is Threat to World's Economy


WASHINGTON, Jan. 7 — With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report released Wednesday by the International Monetary Fund.

Prepared by a team of I.M.F. economists, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits pose "significant risks" not just for the United States but for the rest of the world.

The report warns that the United States' net financial obligations to the rest of the world could be equal to 40 percent of its total economy within a few years — "an unprecedented level of external debt for a large industrial country," according to the fund, that could play havoc with the value of the dollar and international exchange rates.

The danger, according to the report, is that the United States' voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.

"Higher borrowing costs abroad would mean that the adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.

White House officials dismissed the report as alarmist, saying that President Bush has already vowed to reduce the budget deficit by half over the next five years. The deficit reached $374 billion last year, a record in dollar terms but not as a share of the total economy, and it is expected to exceed $400 billion this year.

But many international economists said they were pleased that the report raised the issue.

"The I.M.F. is right," said C. Fred Bergsten, director of the Institute for International Economics in Washington. "If those twin deficits — of the federal budget and the trade deficit — continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty."

Administration officials have made it clear they are not alarmed about the United States' burgeoning external debt or the declining value of the dollar, which has lost more than one-quarter of its value against the euro in the last 18 months and which hit new lows earlier this week.

"Without those tax cuts I do not believe the downturn would have been one of the shortest and shallowest in U.S. history," said John B. Taylor, under secretary of the Treasury for international affairs.

Though the International Monetary Fund has criticized the United States on its budget and trade deficits repeatedly in the last few years, this report was unusually lengthy and pointed. And the I.M.F. went to lengths to publicize the report and seemed intent on getting American attention.

"I think it's encouraging that these are issues that are now at play in the presidential campaign that's just now getting under way," said Charles Collyns, deputy director of the I.M.F.'s Western Hemisphere department. "We're trying to contribute to persuade the climate of public opinion that this is an important issue that has to be dealt with, and political capital will need to be expended."

The I.M.F. has often been accused of being an adjunct of the United States, its largest shareholder.

But in the report, fund economists warned that the long-term fiscal outlook was far grimmer, predicting that underfunding for Social Security and Medicare will lead to shortages as high as $47 trillion over the next 70 years or nearly 500 percent of the current gross domestic product in the coming decades.

Some outside economists remain sanguine, noting that the United States is hardly the only country to run big budget deficits and that the nation's underlying economic conditions continue to be robust.

"Is the U.S. fiscal position unique? Probably not," said Kermit L. Schoenholtz, chief economist at Citigroup Global Markets. Japan's budget deficit is much higher than that of the United States, Mr. Schoenholtz said, and those of Germany and France are climbing rapidly.

In a paper presented last weekend, Robert E. Rubin, the former secretary of the Treasury, said that the federal budget was "on an unsustainable path" and that the "scale of the nation's projected budgetary imbalance is now so large that the risk of severe adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur."

Other economists said they were afraid that this was a replay of the 1980's when the United States went from the world's largest creditor nation to its biggest debtor nation following tax cuts and a large military build-up under President Ronald Reagan.

John Vail, senior strategist for Mizuho Securities USA, said the I.M.F. report reflected the concerns of many foreign investors.

"I would say they reflect the majority of international opinion about the United States," he said. And he added, "The currency doesn't have the safe-haven status that it has had in recent years."

Many economists predict that the dollar will continue to decline for some time, and that the declining dollar will help lift American industry by making American products cheaper in countries with strengthening currencies.

"In the short term, it is probably helping the United States," said Robert D. Hormats, vice chairman of Goldman Sachs International.

Fund officials and most economists agreed that the short-term impact of deficit spending has helped pull the economy through a succession of crisis. And unlike Argentina and other developing nations that suffered through debt crises, the United States remains a magnet for foreign investment.

Treasury Secretary John W. Snow did not address the fund's report directly. But in a speech to the United States Chamber of Commerce on Wednesday, he said Mr. Bush's tax cuts were central to spurring growth and reiterated the administration's pledge to reduce the deficit in half within five years.

"The deficit's important," Mr. Snow said. "It's going to be addressed. We're going to cut it in half. You're going to see the administration committed to it. But we need that growth in the economy. We had an obligation to the American work force and the American businesses to get the economy on a stronger path. We've done it and we have time to deal with the deficit."

But the report said that even if the administration succeeded it would not be enough to address the long-term problems posed by retiring baby boomers.

Moreover, the fund economists said that the administration's tax cuts could eventually lower United States productivity and the budget deficits could raise interest rates by as much as one percentage point in the industrialized world.

"An abrupt weakening of investor sentiments vis-à-vis the dollar could possibly lead to adverse consequences both domestically and abroad," the report said.

Copyright 2004 The New York Times Company

January 8th, 2004, 11:43 AM
I have one simple question...

Who do we owe all this money TO? It seems kind of odd to me that everyone seems to be in debt. SOMEONE has to be owed, and the mere fact that they are owed this money, and are most likely being paid interest for it not being repaid, is in itself a sign of finantial transfer and income to these people.

I always wonder why we have not paid off all of our debts, one by one. I wonder if some of tem are deliberately kept to insure a good return on money or services "lent" to the US by way of fiscal payments or preferred status on any government contract....

January 12th, 2004, 10:21 PM
January 12, 2004

America's Red Ink

The International Monetary Fund has long been accused of failing to sound the alarm before countries with reckless fiscal policies implode. So it was nice to see staff members of the fund's Western Hemisphere department hold a press conference last week to publicize one nation's worrisome trends, which threaten foreign investors and the global economy.

Who was in for the scolding? Haiti? Argentina? Mexico? Not exactly. It's the United States the fund is worried about. An economic slowdown and President Bush's huge tax cuts conspired to swing America's federal budget from a surplus of 2.5 percent of gross domestic product in 2000 to a deficit of some 4 percent in 2003. Add the states' own budget shortfalls and the country's trade deficit, the I.M.F. report notes, and the United States faces an "unprecedented level of external debt for a large industrial country."

Robert Rubin, the former Treasury secretary, and Donald Kohn, a Federal Reserve governor, have also railed against the deficit in recent days. But there is something humbling about hearing it from an international organization charged with monitoring economies on the brink.

In most countries, the I.M.F. is often viewed as America's agent, preaching the inconvenient gospel of fiscal discipline and austerity. There is a certain poignancy now in having the I.M.F. preach the so-called "Washington consensus" to Washington.

The I.M.F. forcefully argues that the United States will need to adjust taxes and spending to bring its finances under control; the recovery alone won't do it. The fund's report warns that America's profligacy and its voracious appetite for credit will drive up interest rates around the world, threatening the global economic recovery and American productivity growth.

Foreign investors are already selling the dollar in reaction to Washington's fiscal recklessness, but the fund warns that this selling could accelerate and create a currency crisis. It also notes that present trends pose dangers for the future of Medicare and Social Security.

Most damning of all, the report attacks the "complicated and nontransparent manner" in which the administration's $1.7 trillion in tax cuts were enacted, designed as they were to mask their true budgetary impact. The I.M.F.'s frustration is understandable. The United States has provided other nations with a terrible model of obfuscatory governance. Congress and the Bush administration enacted "phased in" tax cuts that were supposed to be retired in a decade, accelerated their phasing in and then, after they were priced under the assumption that they would fade away, pledged to make them permanent.

No wonder the rest of the world is appalled.

Copyright 2004 The New York Times Company

January 26th, 2004, 11:59 PM
January 27, 2004

Budget Office Forecasts Record Deficit in '04


WASHINGTON, Jan. 26 — The Congressional Budget Office predicted on Monday that the federal budget deficit would hit a record $477 billion this year and that accumulated deficits over the next decade would total $1.9 trillion.

The nonpartisan budget office's outlook for the long term is significantly more pessimistic than it was just one year ago. It casts new doubt on the ability of President Bush to fulfill his promise of cutting the deficit in half over the next five years, particularly if he persuades Congress to make his tax cuts permanent, which he has vowed to do.

If Congress extends all tax breaks that are scheduled to expire, the agency predicted, the total cost would add up to more than $2 trillion in additional borrowing over the next decade.

And if Congress moves to stop an explosive rise in what is known as the alternative minimum tax, a provision that is expected to raise taxes on millions of families as their incomes rise, the Treasury would lose an additional $469 billion over 10 years.

Extending the tax cuts would increase the accumulated deficit more than $1.2 trillion above the agency's basic forecast. They are now scheduled to expire at various points between now and 2011.

Just a year ago, before the war in Iraq and before Congress passed a sweeping expansion of Medicare, Congressional forecasters predicted that the deficit could melt away by 2007 and that the government could rack up $1.3 trillion in accumulated surpluses within 10 years.

Democrats immediately pounced on the new report, saying it provided more evidence of Mr. Bush's fiscal recklessness.

"It is becoming clear that the Bush administration has no plan to eliminate these deficits," said Representative John M. Spratt Jr. of South Carolina, the senior Democrat on the House Budget Committee. "In the face of mounting deficits, the president proposes another round of tax cuts reducing revenues by more than $1 trillion and driving the budget further into the red."

Administration officials contend that today's deficits are "manageable," given the need for spending on domestic security and the war in Iraq as well as the need to help the economy rebound from the recession of 2001.

The federal deficit reached $374 billion in 2003, a record in dollar terms though not as a percentage of the total economy. The new forecast calls for the deficit to reach $477 billion in 2004, which is essentially what the White House predicted last summer.

But the new budget estimate painted a much gloomier picture for the long-term outlook, even though Congressional analysts are expecting rapid economic growth to lead to big increases in tax revenue for the next several years.

The agency predicts that the economy will grow at the extremely fast rate of 4.8 percent this year and 4.2 percent next year, which is slightly more optimistic than the consensus view among private economists.

The agency also expects tax revenues to surge even faster than the economy, after having fallen for three years in a row.

But the agency's long-term outlook is more subdued. The agency predicts that economic growth will slow to just 2.5 percent a year beginning in 2010. The expected slowdown reflects slower growth in the size of the labor force, but also to some extent the economic drag created by higher deficits.

Douglas Holtz-Eakin, director of the Congressional Budget Office and a former economist in the Bush White House, said on Thursday that making Mr. Bush's tax cuts permanent would most likely have a "modestly negative" impact on long-term economic growth.

Mr. Holtz-Eakin said the initial impact of Mr. Bush's tax cuts was positive, because the cuts lowered marginal tax rates and gave people more incentive to work and produce.

But to the extent the tax cuts lead to higher deficits and greater government borrowing, he warned, they could have a "cumulative corrosive effect on capital accumulation, on national saving and on productivity."

Economists prefer to look at budget deficits in relation to the size of the overall economy, rather than to the absolute dollar amounts.

If this year's deficit turns out as both Congressional and White House budget analysts have been predicting, it would equal about 4.5 percent of the nation's gross domestic product. That is high, but well short of the record set under President Ronald Reagan in 1983, when the deficit was equal to 6 percent of the economy.

Treasury Secretary John W. Snow, in a speech delivered by satellite to a business conference in London, said today's deficits were "not historically out of range" and said the deficit would be equal to less than 2 percent of gross domestic product by 2009.

To be sure, the Congressional report includes a few assumptions about spending that are unrealistically high. To comply with its own legal requirements, the agency assumed that the government would repeat last year's $87 billion in extra spending for Iraq and Afghanistan.

Most analysts assume that the costs of occupying those countries will decline in the next few years, though they are unlikely to disappear.

But if the Congressional Budget Office assumed an unrealistically high level of spending on Iraq, it may have been too optimistic about the willingness of either Mr. Bush or Congress to restrain the overall growth in spending.

The new report assumes that discretionary spending, which includes money for everything from military programs to education and environmental programs, will climb only at the rate of inflation — about 2.5 percent a year.

But White House officials have said they will propose to increase discretionary spending by 4 percent in 2005 and defense spending by 7 percent. Those costs will not include additional money for occupying or rebuilding Iraq, which the administration has thus far sought through supplementary budget requests to Congress.

Republicans took heart that the new report confirmed a strong rebound in the economy, which they said proved the value of Mr. Bush's tax cuts.

"I am pleased that our economic outlook has improved and the unemployment rate is projected to continue to fall," said Representative Jim Nussle, Republican of Iowa and chairman of the House Budget Committee. But Mr. Nussle also hinted at frustration about the administration's refusal to include cost estimates for Iraq in the budget plan for 2005 that is to be unveiled next Monday.

"At this point, the immediate, necessary spending we've had to do as a result of `emergency' circumstances is now largely known," Mr. Nussle said, "and can be worked into our regular budget planning."

Copyright 2004 The New York Times Company

February 3rd, 2004, 08:22 AM
February 3, 2004

Bush, in Budget, Seeks Increases Tied to Security


WASHINGTON, Feb. 2 — President Bush submitted a $2.4 trillion budget on Monday that would substantially increase spending next year for national security and give the administration a claim to reducing the deficit but would also cut or strictly limit money for most domestic programs.

The release of Mr. Bush's budget for the fiscal year starting Oct. 1 amounted to a statement of his election-year priorities, and it underscored the degree to which the administration's policy and political focus are on fighting terrorism and building up the military.

The budget immediately drew fire from Democrats, who said that its deficit reduction claims were illusory and that it would shortchange a broad range of national priorities to pay for the tax cuts Mr. Bush has pushed through Congress over the past three years.

The plan called for an increase in military spending of 7 percent, or $26.5 billion, to $401.7 billion. But that figure did not include money, which the administration said could be as much as $50 billion, for continued military operations next year in Iraq and Afghanistan. The administration said it would specify and seek financing for the expense only after the presidential election. [Page A15.]

For domestic security programs, the White House said it wanted a budget increase of 9.7 percent, or $2.7 billion, to $30.5 billion.

By contrast, the budget proposed that the overall growth in spending on other government operations outside of Social Security and Medicare — a category that encompasses everything from the national parks to the National Institutes of Health — be held to one-half of 1 percent, or $2 billion, to $386 billion. Seven of the 16 cabinet-level departments would see their budgets reduced.

Mr. Bush's stringent spending plan would make exceptions for some politically important issues like education, but it would generally require his own party, as the majority in Congress, to cut, freeze or kill many programs in the months leading up to Election Day. It asked Congress to hold spending on new and improved highways to $256 billion over the next six years, $119 billion less than authorized by legislation proposed by Republicans in the House. It called for the elimination of 65 government programs, including grants to companies pursuing new technologies and an initiative to tear down dilapidated public housing, and outright cuts in 63 more.

The budget showed Mr. Bush making good on his pledge to cut the deficit in half within five years from its projected level this year of $521 billion to $364 billion next year and $237 billion in 2009.

But the White House did not provide figures on what would happen to the deficit in the years beyond the next half-decade, when the president's call to make permanent the 10-year tax cuts he pushed through Congress in 2001 and 2003 would show up in the budget. And to show he could meet the deficit reduction target in the next five years, the president left out of his calculations any money for some needs both parties say will have to be met.

Democrats pointed in particular to Mr. Bush's decision to delay requesting additional money to pay for the occupation of Iraq and continued military operations in Afghanistan, saying that was one example of fiscal gimmickry in the budget.

The current well of money being used for military needs in Iraq and Afghanistan — $62 billion out of the $87 billion supplemental spending bill passed by Congress last fall — is likely to run dry at some point in the 2005 fiscal year.

Joshua B. Bolten, the director of the White House's Office of Management and Budget, said the United States was currently spending at a rate of less than $50 billion a year on its military forces in Iraq and Afghanistan. He suggested that $50 billion was the upper limit of what the administration would ultimately seek from Congress and said the White House would not make the request until next year, when it would have a clearer idea of the military's needs.

For an election-year budget, Mr. Bush's plan was a bit of an oddity. It included almost no new programs beyond his call for manned exploration of Mars. Other than calling for making the 2001 and 2003 tax cuts permanent, it offered his conservative base no substantial new tax reductions beyond a previously proposed set of tax breaks for a new form of savings and investment accounts. And while his call for additional restraint in some spending categories was welcomed by fiscal conservatives, it was largely offset by new administration figures showing that the Medicare prescription drug benefit will cost far more than Congress had projected.

Speaking to reporters at the White House after meeting with his cabinet Monday morning, Mr. Bush said the budget reflected the progress the country was making in dealing with terrorism, war and recession.

The budget "sets clear priorities: winning the war on terror, protecting our homeland, making sure our children get educated, making sure the seniors get a modern Medicare system," Mr. Bush said. "And at the same time we're calling upon Congress to be wise with the taxpayers' money."

Congressional Democrats sharply criticized the plan as a continuation of fiscally irresponsible policies that have led to a swing from huge projected surpluses to big and persistent deficits during Mr. Bush's presidency. They said blame for the deficits rested far more with the tax cuts than on the spending programs he now wants to rein in or cut. And, they said, the Bush tax cuts have failed to live up to their billing of creating millions of new jobs.

The Democratic presidential candidates also attacked the budget, emphasizing a theme that Mr. Bush had rewarded the affluent while shortchanging the programs most needed by the middle class.

"The new Bush budget is more of the same: record deficits, tax cuts for the wealthy and special interests, and cuts in areas that matter to families — such as health care and education," Senator John Kerry of Massachusetts said in a statement. "This is the same failed Republican prescription that has caused Bush to lose 2.5 million jobs in the last three years."

Republicans on Capitol Hill said they supported the president's goals, but many of them made it clear that the proposals would be changed, probably substantially, as Congress goes through the process of developing a budget resolution and passing the annual spending bills.

Representative Jim Nussle, the Iowa Republican who is chairman of the House Budget Committee, called the president's budget "a great starting point from which to begin our work."

The chairman of the House Appropriations Committee, Representative C. W. Bill Young, Republican of Florida, suggested that it would be possible to meet Mr. Bush's overall spending targets, but not without allocating the money differently from the way the White House would want it allocated, and not without trimming back some of the administration's few spending increases.

"We will be carefully scrutinizing the administration's new initiatives and proposed funding increases to see if we can afford them in a lean budget year," Mr. Young said in a statement. "They will have to be reconciled with proven programs and traditional Congressional priorities."

Mr. Bolten was asked about the political pressures on the budget this year and the lack of provision in the proposal for other bipartisan goals like dealing with the aspect in the tax code that will subject many more middle-income people to a tax increase because of the alternative minimum tax. "The numbers are highly realistic," he replied.

When Mr. Bush took office, the Congressional Budget Office was forecasting $5.6 trillion in budget surpluses over the next decade.

The $521 billion deficit Mr. Bush is forecasting for the current fiscal year would be a record in dollar terms, though not in comparison to the size of the economy. Mr. Bush regularly blames the terrorist attacks, war and recession for the swing in the nation's fiscal fortunes. Democrats have made a case that the tax cuts are the main culprit.

Mr. Bush's budget projects deficits only up through 2009, with most of the improvement coming between this year and 2006, when the deficit would drop to $268 billion. But if Mr. Bush's tax cuts were made permanent, the budget would come under new stresses early in the next decade.

The Democratic staff of the House Budget Committee said making the Bush tax cuts permanent would reduce federal revenues by more than $200 billion in 2011 and by more than $300 billion in 2012, with the price tag rising each year thereafter.

Copyright 2004 The New York Times Company

February 7th, 2004, 04:19 AM
February 7, 2004


A Stingy Recovery

It's a presidential election year, so the economy is being described as both feast and famine. The Bush administration would have you believe that the good times are roaring back, while Democrats paint a bleak picture of a broken nation, about to export its last few jobs to India and China.

Neither portrait is accurate or conducive to a sound policy debate. Though there is a real recovery under way, the growth has yet to be translated into an equally robust expansion of corporate payrolls. The economy added 112,000 nonfarm jobs for the month — a decent number, but far below expectations. The administration, which has presided over the loss of some two million jobs, predicted last fall that the economy would soon be creating some 200,000 new jobs a month. That target has not been reached, despite overall economic growth of 6 percent in the second half of 2003. The pace of growth is slowing, in fact, and public anxieties about the job market remain high.

It will be interesting to see how the president characterizes the economy when he appears on "Meet the Press" tomorrow. Mr. Bush would be wise to start tempering his triumphalism, lest he appear as out of touch as his father did in 1992. Republicans are stubbornly opposing an extension of federal unemployment benefits. Mr. Bush also exaggerates the short-term stimulative impact of his tax cuts, while denying the long-term threat posed by the resulting deficits.

Because the White House's view of the economy is driven by a political narrative, little effort is made to grapple with some of the thorny questions posed by the slow job growth. Has technology-driven productivity growth and outsourcing placed a new speed limit on the rate of job creation? Can the government raise this speed limit?

The Democrats are enamored of their own narrative of corporate robber barons' conspiring with low-paid overseas workers to destroy the American middle class. So the Democratic candidates also fail to engage the complex reality and are too quick to resort to protectionist demagoguery.

The Federal Reserve Board, by necessity, is grappling with the new disconnect between tepid job creation and far frothier indicators. Alan Greenspan and his colleagues are keeping short-term interest rates at record-low levels, though earlier this month they signaled that the status quo could not last forever. Unable to indulge in political fables, the Fed, like many Americans, is clearly torn about how to react to this stingy recovery.


The Nixon Recovery


Yesterday's good news on the job front, on top of strong growth in the last half of 2003, may finally signal that President Bush's economic recovery is on solid ground. There is still plenty to worry about. Unused production capacity continues to drag down business profits, and job growth, while finally rebounding, remains slow. Consumers have loaded up on debt and could be devastated by a spike in interest rates. But the economic tea leaves are more positive than they have been for a long time.

If President Bush can maintain the recovery through his re-election campaign, he will be in rarefied company. Richard M. Nixon, in fact, may be the only recent president to accomplish this feat, timing a recovery from a midterm recession to coincide with his 1972 race. The reason this is so hard is that, despite all the bragging about creating jobs or speeding growth, presidents really have few economic tools at their disposal. Most federal spending is outside a president's direct control — locked up in things like retirement programs that chug along pretty much by themselves. The same is true of taxes and interest rates. A president can set the agenda, but taxes are ultimately controlled by Congress. Interest rates fall under the domain of the independent Federal Reserve.

Yet Nixon proved that if a president plays his weak hand ruthlessly — without restraint or regard for long-term consequences — he can make the economy sit up and roll over at his command. In the end, of course, the Nixon "recovery" was short-lived and America soon paid a steep price for it. Unfortunately, Mr. Bush's economic performance so far is eerily similar.

Back in the early 1970's, with both high inflation and slow growth, Nixon's economic challenge may have been even more intractable than Mr. Bush's. So, with his re-election in jeopardy, Nixon and his Treasury secretary, John B. Connally, bludgeoned both the Congress and Federal Reserve into a truly radical experiment. Congress passed wage and price controls and the Federal Reserve simultaneously increased the money supply.

The gamble was that a big jolt of money would rev up the economy while the price controls would suppress inflation. It worked, allowing Nixon to win in 1972. But success came at a huge cost. Once the price controls were removed through 1973 and 1974, all the suppressed inflation came roaring out, hitting the double digits and plaguing the second half of the 1970's. Worse, the resulting collapse of the dollar led to the 1973 OPEC "oil price shock." Altogether, it was one of history's most expensive election campaigns.

Many analysts worry that a Bush-style recovery could be similarly catastrophic. Taking a page from the Nixon playbook, Mr. Bush has wielded his fiscal tools aggressively. Over the last two years, there has been a half-trillion dollar swing in the federal books, from a $100 billion surplus in 2001 to a deficit of about $400 billion in 2003, and an expected $521 trillion in red ink for 2004.

The deficits have been driven by deep tax cuts and unrestrained spending. That includes big increases for domestic security, but other initiatives as well, like a generous new subsidy program for industrial farmers. On the surface, this looks like a standard, if unusually forceful, application of textbook economics. The government is supposed to run deficits in slack times and stash away surpluses during the fat years. So why the worries? Mr. Bush's program, like Nixon's, is not the textbook one-time kick in the pants, but a rejection of a half-century's consensus on the proper management of a modern economy.

The Bush program was not originally intended as a response to the recession. Instead, it was just the opening wedge of an unprecedented 10-year program to eliminate virtually all taxes on businesses and investment income, on the theory that everyone's better off when investors are well fed. The administration, in fact, first justified its program as necessary to head off high federal surpluses, then opportunistically switched the argument when the recession started to bite hard. The tax cuts, moreover, have come at a time when federal taxes, as a share of gross domestic product, are already at their lowest level since 1959.

President Bush's planners claim that budgets will be back in balance within the decade. But a recent Brookings Institution study makes those calculations look like sleight of hand. To keep cost estimates down, for example, the administration has built "sunset" provisions into almost all of its tax cut programs. In theory, when the sunset dates arrive, the tax law will switch back to its pre-Bush status. Fat chance. The administration itself is pushing hard to abolish all the sunset provisions. The Brookings analysts foresee deficits increasing every year for the next decade, with total red ink around $8 trillion.

The consequences of that could be bad enough — higher interest rates and declining competitiveness and growth. But it gets worse. In the coming years, baby boomers will start making their first claims on Social Security and Medicare. There is no way the country can run deficits on the scale of the Brookings forecasts and decent retirement programs at the same time. Boomers do not take rejection with good grace, and their tolerance will not improve as they get older. From the perspective of 2010 or so, citizens may look back on the post-Nixon 1970's as halcyon days.

Charles R. Morris is the author, most recently, of "Money, Greed and Risk."

Copyright 2004 The New York Times Company

February 10th, 2004, 01:07 AM
February 10, 2004


Jobs, Jobs, Jobs


Last Friday the Bureau of Labor Statistics delivered yet another disappointing employment report.

Since there's a lot of confusion on this subject, let's talk about the numbers. The bureau actually produces two estimates of employment, one based on a survey that asks each employer in a random sample how many workers are on its payroll, the other on a survey that asks each household in a random sample how many of its members are employed. Most experts regard the employer survey as more reliable; even in the midst of the recovery, that survey has contained nothing but bad news. The household numbers look better, but not particularly good.

For technical reasons involving seasonal adjustment, many economists expected the January report to show a one-time bounce in both measures. Yet employment as measured by the payroll survey rose by only 112,000 — well short of the increase needed just to keep up with a growing population. If employment were rising as rapidly as it did when the economy was emerging from the 1990-1991 recession, we'd be seeing monthly numbers more like 275,000.

Taking a longer view, the payroll numbers tell a dismal story. Since the recovery officially began in November 2001, employment has actually fallen by half a percent, while the working-age population has increased about 2.4 percent. By this measure, jobs are becoming ever scarcer.

The household survey, on which the official unemployment rate is based, tells a less dismal but far from happy story. (Why the discrepancy? We don't know.) The number of people who say they have jobs has risen since the recovery began — but has still lagged behind population growth.

The only seemingly favorable statistic is the unemployment rate, which has recently fallen to 5.6 percent, the same as in November 2001. But how is that possible, when employment has grown more slowly than the population, or even declined? The answer is that people aren't counted as unemployed unless they're looking for work, and a growing fraction of the population isn't even looking. It's hard to see how this is good news.

Other indicators continue to suggest a grim job picture. In the last three months, more than 40 percent of the unemployed have been out of work more than 15 weeks. That's the worst number since 1983, and a sign that jobs remain very hard to find — which is what anyone who has lost a job will tell you.

One last statistic — not about jobs, but about wages. Since the last quarter of 2001, real G.D.P. has risen 7.2 percent. But wage and salary income, after adjusting for inflation, is up only 0.6 percent. This matches what the employer survey is telling us: America's workers have seen very little benefit from this recovery.

In the light of these dreary statistics, President Bush's recent cheerfulness seems almost surreal. On Friday, he said that he was "pleased, obviously, with the new job growth." When Tim Russert asked in the "Meet the Press" interview what happened to all the jobs that Mr. Bush promised his tax cuts would create, he replied: "It's happening. And there is good momentum when it comes to the creation of new jobs."

We expect politicians to place a positive spin on economic news, but to insist that things are going great when many people have personal experience to the contrary seems foolish. Mr. Bush's father lost the 1992 election in large part because he was perceived as being out of touch with the difficulties faced by ordinary Americans. Why is Mr. Bush — whose poll numbers are a bit worse than his father's were at this point in 1992 — running the risk of repeating his experience?

The answer, I think, is that the younger Mr. Bush has no choice. He has literally gone for broke, with repeated tax cuts that have fed a $500 billion deficit. To justify policies that more and more people call irresponsible, he must claim that wonderful things are happening as a result.

For a while, that famous 8 percent growth rate seemed to be just what he needed. But in the fourth quarter, growth dropped to 4 percent. And as we've seen, the jobs still aren't there.

So Mr. Bush must put on a brave face. He and his officials must talk up weak economic statistics as if they represented stunning success, and predict marvelous things any day now. After all, they have to keep this up for only nine more months.

Copyright 2004 The New York Times Company

June 16th, 2004, 11:00 AM

June 16, 2004

Even as stocks fell, jobs van ished and the economy shook, American shoppers stayed busy.

And now, despite rising oil prices and potentially higher interest rates, they look ready to keep on spending to help the nation's economic rebound.

Just yesterday, the University of Michigan's consumer-confidence survey exceeded the expectations of Wall Street's wizards and showed that the American consumer juggernaut isn't ready to slow down.

Companies are hiring more workers, and will continue to do so as shoppers crowd stores from Wal-Mart and Home Depot to Saks Fifth Avenue and Tiffany's.

Now those stores, which were forced to discount products and rethink their business, again are poised to prosper.

The final piece of The Post's Boom Time series looks at the nation's shopping explosion — how it's meant big bucks to stores and why it's not likely to let up anytime soon.

Copyright 2004 NYP Holdings, Inc.

October 25th, 2004, 04:55 PM
It's sad to look at the last post in this thread (Jun 2004) and see where we are now.

October 25th, 2004, 06:55 PM
You can track an economic recovery from the media reports. First, we were in a recession. Then, by early 2002, the GDP figures were positive again, and continued so ever since in a way above "modest" figures. However, few jobs were gained, thus calling the recovery the "jobless recovery." Then for over a year we have gained jobs in a fast way, well over 1 million jobs have been gained. Now people are admitting that we are gaining many jobs, so now the media says that, "well, the jobs we're gaining are not very well-payed ones." Well, that means that the recovery is nearly complete, because the news tends to be a little slow with analysis of the economic situation. Soon white-collar jobs will be added and the recovery will be complete. You have to remember, that the employment data is almost always the last the set of data to improve in an economic recovery. Yes, the jobs have been very mediocre jobs, but that's normal. A recovery doesn't begin with a surge in demand for white-collar type jobs. But it is still significant that waitresses, etc. are being employed because it reveals an underlying demand for increased goods and services. Which show that people, who do have jobs, have money. And now real-estate growth is the highest ever with record numbers, because are people are using their money to invest in something real and solid not like the IPO's of the late 90's.

October 25th, 2004, 07:05 PM
The deficit is a problem because Bush has spent too much money on new programs so that he can get elected. Of course the amount spent on the defense is excusable. The imporant thing about the U.S. deficit is that it's not to other countries, which is important because it is always the "foreign" debt that screws countries, not the "domestic" debt. But the domestic debt will hurt over the long-run, because it decreases faith in the U.S. dollar among foreign investors. However, there is one country we still owe money to, that is Japan. Japan nearly took over our status as largest economy in the world by the early 90's. So the Japanese bailed us out, with over 1 trillion dollars in a loan, that didn't have a set date for us to pay back. We still havn't payed them back yet, but that's ok cuz if we use our resources to pay them, then our economy might go down, which will directly affect the Japanese economy.
However, it is not the deficit that worries "all" economists. Economists look at the net flow of investment into and out of a country because that really determines the financial stability of the country. So for example the debt is put in the "flow-out" category, which is sizable. But the investment in this country and investment from other countries into the U.S. sizabely outweighs the amount in the "flow-out" category. So we are still in the positive territory in terms of financial gains and stability. That's why the economy is still growing, at paces only outdone by the Far eastern asian countries.

October 25th, 2004, 07:25 PM
I am not going to address your many factual and assumptive errors on the economy. Maybe just one...

Then for over a year we have gained jobs in a fast way, well over 1 million jobs have been gained.
The number of jobs created have not even kept pace with the population growth.


The amount of foreign investment in the U.S. is extremely dependent on the confidence in economic policy. I believe there is an article about it in this thread. Strange with all the "excusable" money spent on defense, we managed to allow 350 tons of high explosive to vanish

October 25th, 2004, 07:46 PM
No, Zippy the Chimp. The jobswatch site never ran contrary to what i said. In fact the job numbers are the same, because the data is all the same. As you know, most of the economic data, including the GDP data, come from the Commerce Dept. Its just that, according the JobsWatch, that the pace of jobs gains is not as fast the working-age pop. growth. You stated, "population growth", maybe you meant "working-age pop.", there's a difference. because that will be really hard to gain jobs faster than pop growth. Plus, since the U.S. population is growing quite fast. We're going to hit 300 million within a couple of years.

October 25th, 2004, 07:56 PM
Anyone that reads the link I posted would know that the population I referred to was that entering the job market.

All you are doing is picking on one word to disguise the fact that your claim of job recovery is refuted by the data.

It is also refuted by the majority of the population that believes the country is headed in the wrong direction. Even Bush has abondoned the economy as a campaign issue.

I know you are running out of ideas, since your fonts are getting big again.

October 25th, 2004, 08:25 PM
I know you are running out of ideas, since your fonts are getting big again.

Thank you for another "laugh out loud moment".

October 25th, 2004, 08:46 PM
because that will be really hard to gain jobs faster than pop growth.
That's hilarious - because at this rate most of the population would be unemployed...

October 25th, 2004, 08:49 PM
The "wrong direction" survey is a very general one, regarding to the respondent's "general" feeling about the state of the country, not "specifically" about the economy. A good indicator would be the Consumer sentiment index. It's an indicator of how people feel, specifically, about their personal financial situation. It's reported quite often, so to see where people's feelings are about their own finances would be to average the several reports.
I just asked you to be more specific w/ pop growth, that's all. Because its impossible to have jobs grow faster than the growth rate of people. And sometimes, the working age pop. growth will be faster than job growth, otherwise the unemployment rate would be well below 4%, which is nearly impossible, and extremely unhealthy on the economy because it tightens the labor market too much.

October 25th, 2004, 08:55 PM
Jobs can grow faster than, specifically, working age pop., but not always because that would lead to 0% unemployment. BTW, about 4-5% unemployment rate is considered "full-employment". Right now, last time I checked, we're at around 5.8%. So if we could lower that by 1%, then the country would be at an ideal unemployment level.

October 25th, 2004, 10:17 PM
Unemployment numbers omit those who have given up, and are no longer actively seeking employment.

They are the WMD of the labor force. We know they are out there, but aren't looking for them anymore.

This is too easy - like shooting Apaches in a barrel.

TLOZ Link5
October 25th, 2004, 10:40 PM
This reminds me of a Reagan-era political cartoon:

:D In other news, 89 percent of Americans are not unemployed. :D

October 25th, 2004, 10:45 PM
True, of course, there's no way tell "exactly" why they stopped seeking for labor. Also, a large number of people go back to school at a lower age, and usually they're not counted as part of the labor force. but, yes, of course some of them simply do give up looking for jobs. But none of this analysis changes the fact that 1million + jobs that have been gained in only a year.

October 25th, 2004, 10:48 PM
TLOZ are u referring to one of my posts. I stated the data in a way just like the media or the commerce dept. does.

October 25th, 2004, 10:49 PM
i meant "older age"

October 25th, 2004, 11:10 PM
It does not change the fact that the +million jobs are not enough for a healthy economy.

You can spin it any way you want.

You can spin that the deficit is so large because Bush is somehow forced to spend money on programs because of this pesky election, but somehow it's ok that defense spending, a huge component of the budget, has mostly caused the deficit - that along with the fact that Bush is the first president to finance a war with tax cuts. War on the cheap. All the $120 billion has accomplished is create a propaganda machine to make more people mad at us. Meanwhile, we don't have the money for meaningful anti terrorism initiatives.

You should be a lot more pissed than I am, since you are younger than me and are going to have to pay for this mess for decades.

October 25th, 2004, 11:37 PM
But we are on our way towards a more robust economy. Unfortunately, the oil prices are very high now due to fear, not on anything substantial. Especially, since only 10% of our oil even comes from the middle east. So that is hurting the economy, but it will also soon bottom out, and it will be a big one.
A recovery doesn't start out with a 4 million job growth in a year, for right now 1+million is good, and it is still warming up.
It is more accurate to compare the defense expenditure to the GDP, to really see it's toll on the economy. In that case, it's right around 2-3% of GDP, slightly higher than usual. But lower than in earlier years.

October 25th, 2004, 11:48 PM
Cheerleading. No facts.

but it will also soon bottom out, and it will be a big one.

This is nothing more than you wishing it to be so.

Just wondering - Where do you live?

October 28th, 2004, 08:49 AM

U.S. Consumer Confidence Fell to a Seven-Month Low

Oct. 26 (Bloomberg) -- U.S. consumer confidence fell for a third straight month in October, suggesting growing voter discontent with the economy a week before President George W. Bush seeks re-election.

The Conference Board's consumer confidence index dropped to 92.8, the lowest since March, from a revised 96.7 in September, down from the previous estimate. Americans' assessments of the current economy and their outlook for the next six months fell.

Since the survey began in 1967, no president except Ronald Reagan has won re-election with the confidence index below 100 on Election Day. Three incumbents have lost when readings were below 90.

``It's not good news for Bush,'' said Delos Smith, a Conference Board economist. ``He can still win, but this is not a good omen. People are nervous about their jobs and incomes.''

Job growth has slowed since June and oil prices rose to a record yesterday. The median forecast of 65 economists surveyed by Bloomberg News was for confidence to fall to 94 from an initial estimate of 96.8. Forecasts ranged from 85.5 to 97.

The Conference Board, a New York-based research group, surveys 5,000 households on general economic conditions, people's employment prospects, and spending plans.

The confidence index is below the 115.7 reading when Bush took office in January 2001. Slowing job growth and rising oil prices in recent months have pushed confidence lower since the measure reached a two-year high of 105.7 in July.

Jobs and Energy

``Voters understand that there's more work to do to strengthen the economy and having American's to keep more of their hard earned money is a way to foster economic growth,'' said Scott Stanzel, a Bush campaign spokesman. ``The surest way for consumers to have less money in their pocket is to enact John Kerry's policies of higher taxes.''

The economy added an average of 103,000 jobs a month since June after gaining 204,000 a month in the first half. Crude oil prices, which rose to an intra-day record $55.67 yesterday, are up 80 percent over the past year, pushing gasoline and heating oil costs higher. That threatens to erode consumer spending and prompt companies to be more cautious about hiring.

``High energy and lower consumer confidence will lower the rate of growth,'' Lew Frankfort, chief executive of Coach, Inc., the largest U.S. seller of luxury leather goods, said in an interview.

The component of the Conference Board index tracking assessments of current economic conditions fell to 94.2 from 95.3 in September.

Jobs Hard to Get

While the percentage of Americans that saw jobs as hard to get now fell to 27.8 from 28 percent, the percentage seeing business conditions as ``bad'' rose to 21.4 from 20.4.

A gauge of optimism about the economic outlook over the next six months plunged to 92 this month from 97.7 in September. Consumers said the job market and their own income prospects would worsen.

The readings are ``further evidence that the American people are not fooled by George Bush's rhetoric that the economy is strong and getting stronger,'' said John Edwards, Kerry's running mate.

The percentage that said there would be more jobs available six months from now fell to 16.5 from 17.8 in September, while 18.4 percent said their incomes would increase, down from 20 percent a month ago.

The 4 1/4 percent Treasury note maturing in August 2014 rose 1/32 to yield 3.97 percent at 11:38 a.m. in New York.

Other Readings

The decline in the Conference Board index is consistent with the Oct. 15 preliminary reading on consumer sentiment from the University of Michigan. The university's index fell to 87.5 from September's 94.2. The final Michigan reading for October will be released Oct. 29.

Most national polls, including one released today by the Los Angeles Times, show a statistical tie in the race between Bush and his Democratic challenger, Massachusetts Senator John Kerry.

``It'll be tougher for Bush to make the case'' for re- election, said Charles Gabriel, a senior political analyst at Prudential Equities LLC in Washington.

Voters are signaling their disapproval with Bush's economic policies. A majority of those surveyed by the Times, 51 percent, disapproved of the way the president is handling the economy. An Annenberg Center survey released yesterday found 41 percent said Bush's policies have made the economy worse; 34 percent said he's made the economy better.

U.S. investor optimism dropped to a 12-month low in October. The UBS Index of Investor Optimism sank to 62, its lowest since September 2003 and down from a reading of 74 last month.

Other Presidents

Bill Clinton defeated George H.W. Bush in 1992 when the gauge was 54.6. Jimmy Carter lost to Ronald Reagan in 1980 when the index was 84.2. The confidence index was 87.1 when Carter defeated Gerald Ford in 1976.

This month, the Conference Board found consumer confidence lowest in the Middle Atlantic and East North Central regions, which include the battleground states of Pennsylvania, Ohio, Wisconsin, and Michigan. Confidence is strongest in the South Atlantic region, which includes Florida.

Consumer confidence is higher under Bush than under the previous incumbents who lost, and it's well above last year's levels, when the Conference Board gauge averaged 79.8. During the record 10-year expansion from 1991 to 2001, the index averaged about 103.

``What it means is the election will be close,'' said the Conference Board's Smith. ``It'll make the Bush people very nervous.''

The drop in confidence may reflect Americans' concern about what they'll have left to spend after paying more for gasoline and heating oil. Gasoline prices reached $2.08 a gallon last week, according to the Energy Department.

Buying Plans

While studies have shown confidence indexes don't always accurately predict how consumers will behave, the three-month drop likely will mean slower ``growth in consumer spending,'' said William Hernandez, chief financial officer at PPG Industries Inc. the world's second-biggest maker of car paint, in an interview.

The Conference Board survey found the percentage of consumers planning to buy a car rose to 7.4 percent from 6.3 percent last month. The percentage planning to buy a home dropped to 3.5 from 3.9. The percentage planning to buy a major appliance fell to 27.1 percent from 29.8 percent.

Economists have trimmed fourth-quarter growth estimates, now estimating the economy will expand at a 3.8 percent annual rate after expanding at an estimated 4.3 percent pace from July through September, according to the median of economists surveyed.

To contact the reporter on this story:
Joe Richter in Washington Jrichter1@bloomberg.net.

To contact the editor responsible for this story:
Kevin Miller at kmiller@bloomberg.net.

October 31st, 2004, 07:51 AM
October 31, 2004

Dear President ( _____ ) ...


With the outcome of Tuesday's presidential election too close to call, it seemed a good idea to draft advance letters of congratulation for both President Bush and Senator John Kerry.

DEAR President Bush,
Congratulations on your spectacular victory. You never wavered in your convictions, never cowered before critics and never let details get in the way of being "on message."

But now that the race is over, perhaps you can explain some of the trickier economic issues that you glossed over in your quest to win. Let's start with the federal budget, which crumbled from a surplus of $236 billion in 2000 to a deficit of $413 billion this year. You have promised to cut the deficit in half by the time you leave office, mainly by cutting spending.

Exactly which spending cuts do you have in mind? Federal spending has soared by more than 15 percent since you took office, after adjusting for inflation. Your Republican allies controlled both houses of Congress during most of that period. You never vetoed a single bill. So which part of the spending didn't you like?

Your promise to freeze nonmilitary discretionary programs has already led to de facto cuts in housing benefits and other social programs. But those programs account for less than 20 percent of the federal budget, and freezing them saves only peanuts in the overall scheme of things.

The biggest, fastest-growing areas of spending are off limits: mandatory entitlement programs like Social Security and Medicare; the new Medicare prescription drug benefit, which you pushed through Congress and which your administration says will cost $534 billion over 10 years; military and domestic security budgets, which you would increase; the Iraq war, which shows no sign of abating; and interest payments on the ballooning federal debt.

Adding up the existing commitments and your own tax-cutting goals, the nonpartisan Congressional Budget Office estimated that budget deficits could total more than $4 trillion over the next 10 years.

Congressional analysts assume, as you do, that tax revenue will get a boost from faster economic growth. But they still expect a meteoric rise in federal debt.

So what do you really want to cut? Farm subsidies, which you helped to increase? NASA and the mission to Mars? Education money for No Child Left Behind? Scientific research at the National Institutes of Health and the national weapons laboratories?

Your goal of reforming Social Security raises some big questions. As you have noted, the Social Security trust fund is on a slow course to insolvency as the nation's baby boomers reach retirement age. Part of your solution would be to let people invest some of their payroll taxes in private accounts, earning potentially higher returns - or racking up losses - while assuming more responsibility for their own benefits.

It sounds good, but you never mention that to make this change, the government would have to borrow $2 trillion or more over the next several decades. That is because Social Security would lose a big part of its current revenue but would still need to pay benefits to current retirees. How would you cover that cost?

A Dedicated Voter

DEAR Senator Kerry,
Words cannot convey the thrill of your dazzling victory. They said you lacked charisma, called you a flip-flopper and made fun of your swim trunks. Ha!

They only wish they could windsurf as well as you do.

But now that battle is over, perhaps you can stop fudging on your plans for health care, job creation and deficit reduction.

Let's start with your plan to extend health insurance to more than 20 million people who do not have it today. You say it will cost $653 billion over 10 years. The Lewin Group, a nonpartisan health care consulting firm, estimates that it could cost $1.2 trillion.

Even if your estimate is closer to the truth, what happens if Congress refuses to roll back Mr. Bush's tax cuts for families with incomes above $200,000 a year? How would you pay for your health plan?

Jared Bernstein, at the Economic Policy Institute, a liberal center in Washington, notes that you have castigated Mr. Bush for fiscal irresponsibility and pledged to cut the deficit in half by the end of your first term.

"Let's say you can't roll back the tax cuts," Mr. Bernstein said. "How are you going to implement a health care plan aimed at stimulating job growth while trying to cut the deficit?"

That's not the only problem with your health care program. Fiscal conservatives are aghast over the new Medicare benefit for prescription drugs, which is now expected to cost $534 billion over 10 years. Yet you and other Democrats want to make the program more generous, eliminating many of the gaps in coverage.

Democratic and Republican analysts, meanwhile, agree that Medicare and Social Security face trillions of dollars in unfunded commitments as millions of aging boomers start to claim benefits. The trustees for Medicare predict that if benefits remain unchanged, the main hospitalization fund will be out of money in just 15 years.

Yet all you have said is that you will protect Medicare and Social Security from any cutbacks. Surely you can give us a bit more detail than that.

A Dedicated Voter

Copyright 2004 The New York Times Company

November 18th, 2004, 03:00 PM
House Debates $800B Debt-Limit Increase

By ALAN FRAM, Associated Press Writer

WASHINGTON - Democrats and Republicans clashed over deficits and tax cuts Thursday as Congress moved toward sending President Bush an $800 billion boost in the government's debt limit.

The bill would increase the debt ceiling from its current $7.38 trillion, marking the third massive increase since Bush took office in 2001. The government reached the cap last month, paying its bills since with cash from a civil service retirement account, which it plans to repay.

The Senate approved the legislation Wednesday by a near party-line 52-44 vote. With no alternative but an unprecedented federal default, the House debated the bill Thursday and planned an evening vote.

Democrats were ready to oppose the measure en masse, saying it should have been accompanied by a requirement that tax cuts or new spending be paid for with budget savings. They blamed Bush's tax cuts for the relentless increase in government debt, a trend analysts expect to continue indefinitely, and noted that Republicans delayed the vote until after the Nov. 2 elections.

"That didn't take long," said Rep. James McGovern, D-Mass. "On just the third legislative day after the election, we are yet again confronting the need to raise the nation's debt limit."

Republicans accused Democrats of playing politics with the issue. They blamed the recession for the red ink and said failure to increase the debt limit would cause default, higher interest rates and an inability of the government to pay its liabilities.

"We can demagogue it. We can keep putting on all sorts of messages to feel good or draw political lines. ... But the reality is, we keep screwing around with this thing, we're going to shut the government down," said Rep. Thomas Reynolds, R-N.Y.

The debate came as lawmakers moved toward finishing their work for the year and ending what they hope will be an abbreviated lame-duck session. Heading the remaining business is a compromise $388 billion spending package financing most domestic programs.

That overdue measure, which House-Senate bargainers hope to complete by Friday, curbs the recent growth of funds for biomedical research and education. It cuts Bush priorities, including a nuclear waste repository in Nevada, a hydrogen fuel initiative and aid to countries embracing open-market and democratic reforms.

Completion of the debt limit measure would raise the government's borrowing limit to $8.18 trillion. That is $2.23 trillion higher than when Bush became president, and more than eight times the debt President Reagan faced when he took office in 1981.

Democrats noted that the $5.6 trillion in surpluses that were projected for the next 10 years when Bush took office in 2001 have been transformed into $2.3 trillion in deficits now estimated for the coming decade.

The separate spending measure — a combination of nine separate bills — will finance all federal programs except the departments of Defense and Homeland Security. The measures were supposed to have been approved by Oct. 1, when the government's budget year began.

In a letter to lawmakers, White House budget chief Joshua Bolten threatened a veto if the bill grew in size. Legislative leaders have already decided to keep it within the bounds Bush wants — aided by about a 0.75 percent cut in all programs and reductions in a host of presidential priorities, from community colleges to abstinence education.

Several legislative provisions that drew White House veto threats are also being dropped from the final bill, aides said. These include lifting restrictions on trade with Cuba and easing limits on aid to overseas family planning efforts.

Democrats complained that the bill — which will let non-defense, non-domestic security programs grow by about 2 percent next year — was too stingy. They said clean water grants, the National Science Foundation and federal subsidies for hiring local police officers were all being cut from last year, and that funds for education, biomedical research and veterans' health care were inadequate.

Even so, Democrats were cooperating in negotiating the bill's final form, and many of them were expected to vote for it on grounds that it was better than the alternative.

If the bill is not completed, GOP leaders are offering to simply continue programs at last year's levels. That formula would cut about $4 billion from overall spending, and eliminate the thousands of home-district projects the bill is likely to include.

Copyright © 2004 The Associated Press

November 18th, 2004, 04:41 PM
November 18, 2004
Leading Economic Indicators Dip Again in October

Filed at 3:23 p.m. ET

NEW YORK (AP) -- The economy could be headed for slower growth in the next several months, according to a report released Thursday by a private research group. A separate report showed a drop in weekly claims for unemployment benefits.

The Conference Board said its Index of Leading Economic Indicators fell in October for the fifth straight month. While the declines have been relatively small, they provide a ``clear signal that the economy is losing steam,'' said Ken Goldstein, an economist for the New York-based group.

The index fell 0.3 percent in October -- worse than the 0.1 percent decline that economists had been expecting -- following declines of the same amount in September, August and July. The indicator, which is intended to predict economic activity over the next three to six months, now stands at 115.1 versus its all-time high of 116.5 in May.

However, the Conference Board noted that while signs of economic weakness have become more widespread in recent months, the recent declines in the index have not been large enough or persistent enough to indicate that the economic expansion is coming to an end.

Many economists expect the economy could be headed for cooler growth in the months ahead, but how much remains a subject of debate. Recent data have been clouded by the unusual effects of the hurricanes in Florida as well as jitters among consumers and businesses in the runup to the presidential election.

With those factors now gone, the main uncertainties facing the economy are how many jobs will be created in the coming months, as well as how robust consumer spending will be during the holiday shopping season, which is critical to retailers.

``We do think things will slow down -- the question is how much?'' said David Wyss, an economist at Standard & Poor's, a financial services firm. Wyss said economists were looking to see how much consumer confidence might rebound now that oil prices were coming off their recent highs and the election is over.

The index is calculated by combining a number of factors believed to be good indicators of the direction of the economy over the next three to six months, such as manufacturing, interest rates, consumer expectations, stock prices and money supply.

Despite the decline in the leading indicators, other recent data have suggested strength, including a surge in industrial production and housing construction last month. Responding to signs of an economic rebound, the Federal Reserve has begun nudging short-term interest rates higher in order to stave off inflation.

Last week, the Fed raised its benchmark short-term interest rate for the fourth time in the past five months, and appeared to suggest that more credit tightening was on the way. The Fed also gave a more upbeat assessment of the economy than it did in their meeting in September.

Jose Rasco, an economist with Merrill Lynch, said that while predictions remain difficult, he believes economic growth could decline to about 3 percent next year from 3 percent to 4 percent this year. ``We're kind of at a crossroads here,'' said Rasco.

In a positive sign for labor markets, the Labor Department reported Thursday that new claims for unemployment insurance dropped by a seasonally adjusted 3,000 to 334,000 last week, the lowest level since the end of October. New filings increased by 5,000 the previous week.

The labor market has lagged behind other parts of an economic turnaround that has taken hold since the summer. Businesses have been cautious about hiring new workers, though in recent months there have been some signs of a pickup in hiring.

Copyright 2004 The Associated Press |

November 20th, 2004, 01:48 AM
House Debates $800B Debt-Limit Increase

By ALAN FRAM, Associated Press Writer

WASHINGTON - Democrats and Republicans clashed over deficits and tax cuts Thursday as Congress moved toward sending President Bush an $800 billion boost in the government's debt limit.

The bill would increase the debt ceiling from its current $7.38 trillion, marking the third massive increase since Bush took office in 2001. The government reached the cap last month, paying its bills since with cash from a civil service retirement account, which it plans to repay.

Copyright © 2004 The Associated Press

To get a handle on the size of the real national debt see: Measuring the Federal Government's Unfunded Liability (http://www.ncpa.org/iss/bud/2003/pd103003a.html)

Our folks in Washington have created a national debt so staggering it is impossible for the ordinary person to relate to such numbers, but which our nation’s younger generation [those just entering the job market] will be taxed to extinguish, or, those who hold securities of the United States [ Notes, Bills and Bonds] will be flatly defrauded of their investment in Congress’ profligate borrowing and spending habits.

It is beyond belief that a hard working American would support the leaders of either of the two political parties during election time because the leaders of both are responsible for enslaving our nation’s children with their votes in Congress Assembled___ votes which have created national debt of about $50 trillion!

Why is it so difficult for the people of American to not see why there is such fighting between Republican and Democrat leaders during election time? Is it not so obvious that one thing remains constant after each election? Those who win elections get to be in charge of who will be hired and fired from the countless political plum jobs created by our folks in Washington whose job it is to redistribute wealth taxed away from the American people.

For example, how much money is pilfered from the budget of the Department of Education (http://www.townhall.com/columnists/michellemalkin/mm20010531.shtml), into the pockets of those appointed and hired to run the operation? And, how many political plum jobs with six figure salaries have been created domestically over the past 40 years to redistribute money taxed away from hard working Americans?

To get a perspective on the countless political plum jobs created by our folks in Washington, take a look at a 1956 telephone directory under federal government and you will find two pages of federal government offices. Look today and that two pages has exploded into a telephone directory that challenges the telephone directory size of many of America’s cities. But what is most astonishing when one realizes how large the federal government has become, and how it now manages to meddle into almost every aspect of the people’s private lives, is to read the words of James Madison in Federalist Paper No. 45 (http://www.yale.edu/lawweb/avalon/federal/fed45.htm) and then compare his words to the listings of the federal government in your telephone directory.

"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce. ... The powers reserved to the several States will extend to all the objects which in the ordinary course of affairs, concern the lives and liberties, and properties of the people, and the internal order, improvement and prosperity of the State."

Fact is, our federal government personifies a living creature: it grows, it protects itself, it feeds on those it can defeat, and does everything to expand and flourish, even at the expense of enslaving a nation’s entire population with a national debt which exceeds 50 Trillion dollars. Indeed, the servant has become the master over those who have created a servant, and the new servant pays tribute to a gangster government which ignores our most basic law…our constitutions, state and federal.


December 2nd, 2004, 10:29 PM
December 2, 2004


The 9/11 Bubble


The Washington Post had a story on Monday that contained possibly the greatest hint to a sitting cabinet secretary to start looking for another job that has ever been printed. The article reported, "One senior administration official said Treasury Secretary John W. Snow can stay as long as he wants, provided it is not very long."

Provided it is not very long!

Yo, Mr. Secretary, I'd say someone in the White House wants you gone! If I were you, I wouldn't renew any leases for more than a month at a time - or buy any really green bananas for the office. And those books you checked out of the Treasury library? Could you, like, maybe return them in the next few days? You know, just in case. I mean, it all depends on what the meaning of "long" is.

I feel sorry for Mr. Snow. Reading your career obituary over breakfast can't be much fun. But I feel even more sorry for the country. I can't recall a time when the Treasury Department has been so emasculated by a White House. I went by the Treasury the other day and noticed a big sign outside saying it was being remodeled. Why bother? Who would know if it was gutted? The country would get more fiscal benefit by renting out the Treasury rooms for weddings, graduations and bar mitzvahs than it's gotten in the past four years from any advice coming from there.

Here's a trivia question for you: Who is the deputy Treasury secretary? It's a pretty important job, but I have no clue who it is.

This is a time when we really need a strong Treasury secretary capable of speaking up for fiscal sanity. We are about to embark on a 10-year period in which recent tax cuts and runaway spending are expected to add $5 trillion to the cumulative deficit. In my lifetime we will have gone from the Greatest Generation to the Profligate Generation to the Bankrupt Generation. Yes, I'm talking to you 20-year-olds. President Bush has called for sacrifice - but not by his generation. He's passing the bill onto your generation.

"The 9/11 crisis has been used as a license to spend and cut taxes rather than to set priorities and focus our resources on what is critically important to our nation's security," said Robert Hormats, vice chairman of Goldman Sachs International.

And Congress has played right along, as have people like Josh Bolton, Stephen Friedman and Gregory Mankiw - Mr. Bush's key White House economic advisers. "You know that all these guys know better," said Clyde Prestowicz, head of the Economic Strategy Institute.

There have been lots of strong Republican and Democratic Treasury secretaries in recent years: George Shultz, Nick Brady, Jim Baker, Bob Rubin, Larry Summers. But right when we really need one with common sense and the will to set priorities, all indications are that this White House is looking for someone even weaker than Mr. Snow.

David Rothkopf, a former Clinton Commerce Department official who just wrote a history of the National Security Council, said that President Bush is obviously "seeking consensus and homogeneity. But the system works better when the president gets choices. If everyone is on the same page and it turns out to be the wrong page - you're really up a creek."

The very reason Mr. Bush had the luxury of launching a war of necessity in Afghanistan and a war of choice in Iraq, without a second thought, was because of the surpluses built up by the previous administration and Congress. Since then, the Bush team has been slashing taxes in the middle of two wars, weakening the dollar and amassing a huge debt burden - on the implicit assumption that nothing will go wrong in the future.

But what if there is another 9/11 or war of necessity? We're cooked. The tax revenue won't be there, so the only option will be more borrowing and a weaker dollar. But what happens if the Chinese and other foreigners, who now hold over 40 percent of our Treasury securities, decide they don't want to hold these depreciating dollars anymore, let alone buy more?

It is now clear to me that we have followed the dot-com bubble with the 9/11 bubble. Both bubbles made us stupid. The first was financed by reckless investors, and the second by a reckless administration and Congress. In the first case, the public was misled by Wall Street stock analysts, who told them the old rules didn't apply - that elephants can fly. In the second case, the public was misled by White House economists, peddling similar nonsense. The first ended in tears, and so will the second. Because, as the dot-com bubble proved, elephants can fly - "provided it is not very long."

Copyright 2004 The New York Times Company

January 26th, 2005, 08:28 AM

Record '05 Deficit Forecast

War Costs to Raise Total to $427 Billion

By Jonathan Weisman
Washington Post Staff Writer
Wednesday, January 26, 2005; Page A01

Additional war spending this year will push the federal deficit to a record $427 billion for fiscal 2005, effectively thwarting President Bush's pledge to begin stanching the flow of government red ink, according to new administration budget forecasts unveiled yesterday.

Administration officials rolled out an $80 billion emergency spending request, mainly for Iraq and Afghanistan, conceding that the extra money would probably send the federal deficit above the record $412 billion recorded in fiscal 2004, which ended Sept. 30. Bush has pledged to cut the budget deficit in half by 2009, a promise the administration says it can keep. But at least for now, the government's fiscal health is worsening.

"We must get serious about putting our financial house in order, beginning with short-term deficit reduction and then long-term control of entitlement spending," said Senate Budget Committee Chairman Judd Gregg (R-N.H.). "If we do nothing, our kids and grandkids will be overwhelmed by the cost of our inaction."

In separate briefings, administration officials detailed the rising cost of war while the nonpartisan Congressional Budget Office released its deficit forecast for the coming decade. Taken together, the briefings painted a sobering picture of the government's financial strength, even in the face of a growing economy and rising tax receipts. The figures suggest the Bush administration will continue to have difficulty reining in federal deficits as long as war is draining the government's coffers.

"There is no question that [the insurgents], with relatively small expenditures, are proving themselves to be able to force us into much larger ones," one senior administration official said.

Of the $80 billion request, at least $75 billion would fund the wars in Iraq and Afghanistan this year. An additional $5 billion would go toward building an embassy in Baghdad, continuing reconstruction in Afghanistan, offering assistance to the Palestinians and sending relief to the Darfur region of Sudan. That $80 billion would come on top of $25 billion already appropriated for the war this year, pushing the total cost of fighting to $105 billion, up from $88 billion in 2004 and $78.6 billion in 2003.

"Our troops will have whatever they need to protect themselves and complete their mission," Bush said in a statement.

The latest war request would push the total cost of military operations in Iraq and Afghanistan and other efforts since the Sept. 11, 2001, attacks to $277 billion, according to the CBO. That figure well exceeds the inflation-adjusted $200 billion cost of World War I and is approaching the $350 billion cost of the Korean War, according to Commerce Department figures.

In a separate briefing, CBO Director Douglas Holtz-Eakin said tax cuts and spending enacted by Congress last year will contribute $504 billion to the government's overall forecast debt between 2005 and 2014. Additional debt over that decade should total $1.36 trillion, well above the $861 billion figure the CBO projected in September.

"We're doing a little bit worse over the long term," Holtz-Eakin said, "and it's largely due to policy" changes.

A senior administration official told reporters that Bush's budget -- to be announced Feb. 7 -- will show the government on track to cut the deficit in half from the White House's initial deficit projection for 2004.

But the CBO projections cast significant doubt on that claim. In total, the CBO projected that the government will amass an additional $855 billion in debt between 2006 and 2015, but Holtz-Eakin cautioned that the figure almost certainly understates the problem. The total assumes no additional money will be spent in Iraq or Afghanistan over the next decade. Perhaps more important, the CBO, by law, must assume Bush's first-term tax cuts will expire after 2010, sending the government's balance sheet from a $189 billion deficit that year to a $71 billion surplus in 2012.

The CBO forecast also excludes the cost of Bush's promised restructuring of Social Security, which could add an additional $1 trillion to $2 trillion over the next decade.

Even with those favorable omissions, the CBO projected that Bush will miss his goal of cutting the deficit in half by 2009 from last year's level. The 2009 deficit, excluding war and Social Security costs, is expected to drop to $207 billion, just over half of last year's record $412 billion level, the forecast said.

"Having racked up three of the largest deficits in history, the Bush administration is years away from reducing the deficit by half, or by any appreciable amount," said Rep. John M. Spratt Jr. (S.C.), the ranking Democrat on the House Budget Committee.

By any measure, the CBO's projected deficit for fiscal 2005, which began Oct. 1, is disappointing, some Republicans acknowledged. In the first three months of the fiscal year, tax receipts actually surged, rising 11 percent higher than they were during the first quarter of fiscal 2004, Senate budget aides said. Corporate tax receipts jumped 50 percent, suggesting a robust economic recovery would improve the government's fiscal position.

But Holtz-Eakin said congressional forecasters had always anticipated the tax picture would improve with the economy. The problem, he said, is spending.

The administration officials refused to detail exactly how the $80 billion request would be divided up. Of the $75 billion for the military, the bulk would go to the Army to support deployed troops, help convert the Army's force structure to smaller "modular" combat brigades, and to begin repairing and replacing battered military equipment. Some of the money would help accelerate the training and equipping of Iraqi and Afghan security forces, one official said.

As much as $1 billion would go toward defeating roadside bombs, the official said. The money would be spent on improved intelligence and surveillance, the training of canine detection teams and the development of technology.

Continued Deficits
Tax breaks and war costs could make it extremely difficult for the Bush administration to meet its goal of halving the budget deficit in five years, new Congressional Budget Office figures show.

© 2005 The Washington Post Company

February 8th, 2005, 08:03 AM
February 8, 2005

The Big Picture May Seem Rosy, but the Deficit Is in the Details


http://graphics10.nytimes.com/images/dropcap/w.gifASHINGTON, Feb. 7 - The large tables in President Bush's new budget show he intends to keep his promise of slicing the federal deficit in half by the end of his term, but the fine print indicates that the goal may be elusive.

The budget is notable for including limits on spending that are unlikely to be enacted and for excluding expenses that are sure to be incurred. Here are the most important points:

¶It assumes that all discretionary spending outside of military and domestic security - everything from paperclips to space shuttles - will be frozen for the next five years.

¶It includes no spending for the war in Iraq and Afghanistan in 2006. Those costs are now running about $5 billion a month and are likely to continue at some level in the 2006 fiscal year and beyond.

¶It omits the initial cost of Mr. Bush's Social Security plan, which would let people divert some of their payroll taxes to private saving accounts. Administration officials estimate the plan would cost $23 billion in 2009 and $754 billion over the next decade.

¶It leaves out the cost of reining in the Alternative Minimum Tax, a tax that was created to affect the nation's wealthiest taxpayers but is now ensnaring millions of moderate-income families as incomes rise with inflation.

"It's a very unrealistic budget for a document that is supposed to reflect the president's policies," said Robert L. Bixby, executive director of the Concord Coalition, a bipartisan organization that lobbies for deficit reduction.

In his message to Congress, Mr. Bush promised to hold "federal programs to a firm test of accountability" and take "the steps necessary to achieve our deficit reduction goals."

The budget envisions the annual deficit shrinking to $233 billion from $427 billion by 2009. As a share of the national economy, a measure economists consider more meaningful, the deficit would decline from 3.6 percent to 1.5 percent, meeting the president's goal of cutting the deficit in half.

But even with all the expensive omissions and problematic spending cuts, many of which Congress rejected last year, Mr. Bush's goal of deficit reduction has already slipped further into the future.

One year ago, when he first pledged to cut the deficit in half by the 2009 fiscal year, the White House predicted that the budget deficit would decline to $364 billion in 2005 and $268 billion in 2006.

Now, the White House is predicting that the budget deficit will rise to $427 billion in 2005, the current fiscal year, and decline to only $390 billion in 2006.

Many people who follow budgets closely doubt much deficit reduction is in the offing. Speaking especially about the proposed freeze in most domestic programs, Stanley E. Collender, who writes an impartial annual guide to the federal budget, said, "It is unrealistic to expect Congress to march in lockstep and accept the president's proposals." Mr. Collender said he expected the deficit to be "in the $400 billion range for the rest of the decade."

By any measure, the new budget is austere. It calls for deep cuts next year in almost every category of domestic spending outside the mandatory entitlement programs like Social Security and Medicare, which are based on laws adopted in previous years.

Analyses show that preventing these programs from rising with the rate of inflation and population growth over the next five years would amount to a 16 percent cut, or $65 billion out of $391 billion now being spent.

After adjusting for inflation and including federal salary increases already approved for next year, the vast majority of domestic programs would experience real cuts for the second year in a row, a development that has not happened under modern budget procedures.

Over the past four decades, spending for domestic discretionary programs has declined in only four years - in the first budget year under President Richard M. Nixon, at the beginning of President Ronald Reagan's first and second terms and one year under President Bill Clinton. Each time, spending climbed again the next year.

Mr. Bush's Republican allies in Congress are already chafing about proposed cuts to farm subsidies, education programs, veterans' benefits and community development block grants.

Moreover, while projecting aggregate spending reductions, the budget does not spell out which specific programs would be cut after 2006.

Many of the savings that Mr. Bush is proposing are recycled ideas included in budgets year after year to show a lower projected deficit, even though their enactment is doubtful. Mr. Bush proposed substantially cutting or eliminating 65 programs last year, for a total proposed saving of $4.9 billion, but Congress eliminated fewer than a half dozen of them, for a total saving of less than $200 million.

Among the proposals that Congress rejected last year and that cropped up again on this year's list are reductions in community development block grants, which included $302 million in projects that were earmarked by individual members of Congress, higher deductibles and copayments for veterans receiving prescription drugs and medical services, and elimination of "Even Start," a $247 million education program aimed at helping children of illiterate parents.

Budget analysts noted on Monday that Mr. Bush's plan also assumed a sharp slowdown in the growth of military spending, which has soared 35 percent in the past four years.

Not counting money for the wars in Iraq and Afghanistan, the new budget envisions that expenses for salaries, weapons systems and other military costs will climb 4.6 percent this year to $419 billion.

By 2009, the budget is projecting only a 2 percent rise, but that would require the Pentagon to forgo some of its long-term modernization projects. As a practical matter, Pentagon officials are almost certain to push for the money and are likely to have the ear of Congress.

As for the cost of fighting in Iraq and Afghanistan, the administration plans to ask Congress for $81 billion on top of the normal military budget for this year, but it has not said what may be necessary in the 2006 fiscal year. Army commanders, however, are planning on the assumption that at least 120,000 troops will remain in Iraq through 2006.

The new budget also omits any cost estimate for dealing with the Alternative Minimum Tax. The alternative tax was intended to prevent high-income people from taking too much advantage of special tax breaks. But because it is not indexed for inflation, it is leading to tax increases for millions of additional families each year.

Administration officials have already said they want to prevent that, but the proposed budget still assumes that the Alternative Minimum Tax will produce a rising torrent of new tax revenue. Preventing that tax increase would cost $72 billion in 2009 and $500 billion over the next decade, according to the Congressional Budget Office.

Joshua B. Bolten, the White House budget director, said the administration had not included the cost of a tax fix because the Treasury Department planned to address the alternative minimum tax as part of a broader tax overhaul later this year.

Perhaps the biggest initiative not in the budget is Mr. Bush's plan to overhaul Social Security and let people divert some of their payroll taxes into private accounts.

Administration officials acknowledged that their plan would force the government to borrow about $774 billion of the next decade, and several trillion more in the decades that follow, because the government would still have to pay full benefits to people who are already 55 years or older. All this borrowing will show up in annual budget deficits.

On Monday, Mr. Bolten affirmed the White House view that such "transition costs" are not an increase in government debt, because the government would get more than its money back many decades from now as future retirees depend more on their private accounts than on government-guaranteed benefits.

"Transition financing does not represent new debt," Mr. Bolten told reporters.


Copyright 2005 (http:///ref/membercenter/help/copyright.html) The New York Times Company (http://www.nytco.com/)

October 11th, 2005, 01:41 PM
This thread hasn't seen many posts in quite a while...

Seemingly no one believes anymore that the economy is "getting better".

Here's a good article regarding how to prepare for the future:

The Bottom Line

The Gold Parachute

Or, how to stop worrying and save yourself from the president’s profligate spending and stubborn insistence on no new taxes.

By James J. Cramer (http://newyorkmetro.com/nymag/author_158)

It's dawning on wall street that George W. Bush may be the first president since Lyndon B. Johnson who believes that we can have a guns-and-butter federal spending policy without creating a serious inflation spiral, if not outright government bankruptcy. At least LBJ, to his credit, believed that there were limits to profligacy and that taxes had to be raised. Not President Bush. He’s making Johnson look like a fiscal conservative, what with his insistence on waging a war in Iraq that’s costing $177 million a day and rebuilding New Orleans by taking on a monstrous load of federal debt.

For the longest time, because Bush is a Republican, we on Wall Street simply didn’t believe that he could be a reckless spender. We knew only two paradigms: You either spent less and cut taxes or you spent more and raised taxes. Both courses at least presumed some sacrifice at some time. Not Bush’s plan. He’s gone on both the biggest spending binge and the lowest taxation course in U.S. history, which, alas, will produce gigantic liabilities down the road. Of course, he’ll be back on the ranch by the time his successor will have to deal with his inflation and currency debasement.

Our only hope that financial disaster won’t strike sooner lies with the Chinese, who actually fund our deficit by buying our Treasuries—$242 billion worth, or 12 percent of all foreign holdings. If the Chinese decide to be good communists and stop buying our bonds, the Feds will have to raise rates to attract new investors and the reaper will be at our doorstep with interest rates more akin to those of South than North America. Right now, it’s not a problem. But in a year or two or maybe less, I perceive that the government will throw a bond auction and nobody will show, including the Chinese, until rates shoot up dramatically.

What if that happens? What if our fiscally clueless president really does keep spending at a rate that far exceeds what our government can take in at these low tax rates? What happens if the president’s acolytes and the Pollyannas in Treasury keep believing that we can grow our way, fairy-tale-like, out of this jam? You can bet that when you cash out your nest egg of nice U.S.-based mutual funds and solid common stocks, your dollars will fit nicely into a wheelbarrow designed specifically to cart worthless currency to the bank.

Or you can take matters into your own hands and build a portfolio around these five imminent-Bush-disaster stocks. Be the first on your block to immunize yourself against what may turn out to be the most financially reckless president in history with these anti-inflation equities designed to profit from our president’s unbelievably foolish Panglossian profligacy.

Any portfolio designed to counter government-mandated inflation has to be bedrocked in gold, and there is no gold outfit that can rival Goldcorp, known as Gigi on Wall Street for its GG symbol. Gigi is on pace to produce 1.1 million ounces of the precious metal this year, with a finding cost of $60 per ounce (significantly lower than the industry standard). While Gigi is wildly profitable with gold at $465 — you didn’t know gold had shot up that much lately? Well, what did you expect with this deficit? — I figure gold could reach $1,000 if the Chinese stop buying our paper.

Once the levee to the Treasuries breaks, the easy high ground worth gaining will be gold. Gigi’s got no debt and is incredibly well run—the only gold stock you will ever need. Oh, and like all the companies in this portfolio, it’s not based in the United States, so it’s less tied to the health of the U.S. economy and the strength of the dollar. What a godsend!

Even LBJ believed there were limits to profligacy.
Not Bush.
He’s making Johnson look like a fiscal conservative.

When paper gets debased, you can’t have enough minerals, gold or otherwise, in your stock basket. That’s why I think you should shell out $160 a share for Rio Tinto, the world’s largest mineral seller — it produces silver, copper, iron ore, coal, diamonds, and even zircon (what New York society may be stuck wearing if government spending stays unchecked). Minerals keep their value during periods of inflation, and Rio Tinto has become the chief supplier for China’s industrial revolution.

The world is running out of oil, of course, and the Bush policy of anti-conservation — his bold “drive less” initiative notwithstanding — assures us that we are going to pay full boat for oil for a long time to come. To my way of thinking, you want to be in an oil company that will be allowed to drill and find oil anywhere, which is something U.S. companies can’t necessarily count on, as the welcome mat increasingly gets yanked for Yanks. You need Total, the French Foreign Legion of oil companies. Whether it’s building nuclear power plants to generate electricity or steam to blast oil out of the ground in Canada, or drilling in Iran and Myanmar — two places we aren’t all that welcome — Total’s got your bases covered for the surge in crude.

For those of you who think the energy bill won’t produce anything but subsidies for a bunch of pals of Bush’s or, at best, heavily polluting alternatives to oil, may I give you Sasol? Using pioneering techniques, Sasol’s got the only gas-to-liquids technology that can save the Free World from our insatiable thirst. Of course, it can’t make enough of the darned stuff, but what it can make, it will be able to charge a fortune for. Added bonus: Sasol’s located in Johannesburg, so be sure to take your 2.6 percent dividend and leave it in Krugerrands in South Africa.

Finally, you’ll need some coal holdings, because when things get desperate you can count on this White House to sanction the use of so-called clean coal from Wyoming for everything. I like Fording Canadian Coal Trust because it yields 14 percent and has long-lived reserves that will certainly outlast this administration. It would help if you were domiciled in Canada, a nation also once known for its profligacy but now a beacon of fiscal sanity, because then you wouldn’t get dinged by Uncle Sam’s Canadian withholding tax (generally 15 percent). That way, you could take the dividend in the very strong loonie, long a laughingstock currency until this president decided that debasing the greenback is just one more acceptable casualty of making sure that the rich get richer with extremely low taxes. Thanks, Mr. President!

Look, I don’t know how bad things are going to get. Fortunately, you can do only so much damage to the deficit in three years’ time. But considering Bush has never vetoed a spending bill and would rather die than raise taxes, you have to believe we’d be just plain stupid to make a huge 401(k) bet on strictly domestic stocks. I’m not waiting until the Chinese decide to walk away from the Treasuries table. I’d start buying these stocks now, even if I were a Republican.

James J. Cramer is co-founder of TheStreet.com (http://www.thestreet.com/). He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Fording Canadian Coal Trust.

From the October 10, 2005 issue of New York Magazine

October 12th, 2005, 01:42 PM
President Bush Attempts to Blunt Charges of Cronyism

Still smarting from criticism of his nomination of Harriet Miers to the United States Supreme Court, President George W. Bush today nominated a man he described as “a guy I met at the mall” to succeed Federal Reserve Board Chairman Alan Greenspan.

At a White House ceremony, a beaming President Bush stood at the side of the guy he met at the mall and explained how he came to choose a total unknown to replace Mr. Greenspan, who has served at the Fed since 1987.

Mr. Bush said that the two men met while they were waiting in line at a David’s Cookies store: “I was very impressed with the way he counted his change, and I am confident he will bring that same understanding of money to his new role as head of the Federal Reserve.”

While the president said he did not yet know the name of the guy he met at the mall, he added, “All of that will come out during the confirmation process.”

After being accused of cronyism in the nomination of Ms. Miers, the president may be trying to blunt such criticism by nominating someone he barely knows to run the Fed, some in Washington believe.

But Davis Logsdon, a political science professor at the University of Minnesota, has a different theory about Mr. Bush’s recent appointments: “He may be surrounding himself with lousy people in the hopes that he’ll be graded on a curve.”

Elsewhere, the New York Yankees fell to the Los Angeles Angels despite a ninth-inning attempt by George Steinbrenner to buy the L.A. team.

October 17th, 2005, 11:07 AM
From BBC

General Motors to cut 25,000 jobs

General Motors has announced plans to cut at least 25,000 jobs by 2008.
The troubled carmaker said it needed to dramatically reduce its workforce and close factories after revealing a $1.6bn (£911m) quarterly loss.

The firm has been hit by falling sales in the face of stiff competition from its Japanese rivals and the falling popularity of sports utility vehicles.

GM also said it had reached a tentative agreement with unions to reduce its healthcare expenses by $3bn a year.

'Viable future'

GM has already reduced its US workforce by 30% over the past five years and said it would now work with unions over the details of its latest job-cutting plans.

"We will do our best to minimize this impact on each of you and your families," chief executive Rick Wagoner said in a message to staff.

"We hope you will understand that, with these difficult actions, we will help to ensure a viable and growing GM for the future."

GM made a pre-tax post-exceptional loss of $1.6bn in the past three months, compared to a $315m profit for the same period last year.

Trading was affected by the poor performance of its North American business, which lost $1.6bn and saw its market share slip to 25.6% from 28.5% a year ago.

GM said it had reached a tentative deal with unions to reduce healthcare costs.

If formally agreed, the deal would reduce GM's healthcare liabilities by about $15bn and result in annual cash savings of $1bn.

October 18th, 2005, 11:13 AM
U.S. Economy: Producer Prices Increase By Most in 15 Years

Oct. 18 (Bloomberg) -- U.S. producer prices rose in September by the most in 15 years as higher crude oil and gasoline prices stemming from Hurricane Katrina filtered through into increased costs for chemicals, steel and plastics.

The 1.9 percent surge in prices paid to factories, farmers and other producers was more than forecast and followed a 0.6 percent rise in August, the Labor Department said today in Washington. The core measure, which excludes fuel and food, rose 0.3 percent after no change a month earlier.

Higher costs for raw materials such as crude oil and partially finished goods including lumber and chemicals are raising concerns consumer inflation will eventually accelerate. With some companies such as General Electric Co. boosting prices to cover their costs, Federal Reserve policy makers will keep raising interest rates through early 2006, economists said.

``Slowly but inexorably, inflationary pressures are building across the economy,'' said Joel Naroff, president of Naroff Economic Advisers in Holland, Pennsylvania. ``While I've said on many occasions that the pathway from wholesale to retail prices is hardly direct, the broad-based nature of the increases is worrisome.''

Economists expected the producer price index to rise 1.2 percent, according to the median of 64 forecasts in a Bloomberg News survey. Excluding food and energy, prices were expected to rise 0.2 percent.

Signs of accelerating producer prices initially caused yields on the 10-year Treasury note to rise. The yield declined after a U.S. Treasury Department report showed a $91.3 billion increase in net holdings of U.S. assets by international investors. The 4 1/4 percent note maturing in August 2015 increased 1/16, pushing down the yield 12 basis points to 4.49 percent, at 10:18 a.m. in New York.

Energy Prices

Hurricane Katrina swept through the U.S. Gulf Coast on Aug. 29, disabling drilling platforms and pipelines. The producer price report for September is the first to reflect the effects of record energy prices resulting from the storm. Crude oil prices reached a record $70.85 a barrel on Aug. 30 and have remained above $60 a barrel since then.

Fed Chairman Alan Greenspan said rising fuel costs have drained purchasing power and will weigh on the global expansion. In a speech to Japanese businessmen in Tokyo, Greenspan gave no indication of how the central bank would respond to expectations of slower growth and rising inflation at its Nov. 1 policy meeting.

``Although the global economic expansion appears to have been on a reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on,'' Greenspan said.

This Year

Producer prices were up 6.9 percent for the 12 months ended in September, compared with a 5.1 percent year-over-year gain the previous month. Core prices were 2.6 percent higher, after a 2.4 percent increase in August.

So far this year, producer prices are rising at a 6.4 percent annual rate and core prices are rising at a 2.5 percent annual pace.

``Our price increases more than offset the pressure we had from material inflation,'' Keith Sherin, chief financial officer of General Electric, said on a conference call Oct. 14.

The cost of intermediate goods, products that are partially finished such as lumber and steel, rose 2.5 percent, the biggest increase in 31 years. The increase followed a rise of 0.7 percent in August.

Excluding food and energy, intermediate prices rose 1.2 percent, after falling 0.1 percent the month before. Prices for steel mill products rose 3.7 percent, chemicals jumped 6.8 percent and plastics increased 3.9

Construction Materials

Demand for construction materials for rebuilding after the hurricanes sent prices soaring. Plywood prices rose 14 percent and costs of building paper and board increased 13 percent.

``We are going to start seeing somewhat of a turn'' in manufacturers of intermediate goods being able to pass on higher costs, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.

Prices of materials used at the earliest stage of the production process, including scrap steel and timber, rose 10.2 percent after rising 2.3 percent in August. Excluding food and energy, core raw materials prices rose 5.3 percent.

``The energy shock and the absorption of those costs into our system are putting real pressure on all of our businesses to increase their prices,'' Pete Correll, chief executive of Georgia- Pacific Corp., the biggest maker of plywood in North America, said in an interview on Oct. 7. ``The retailer and the consumer understand that there is an energy crisis and that prices have gone up dramatically.''


The increase in fuel costs may trigger the biggest annual increase in U.S. consumer prices in 15 years as well as another increase in interest rates, according to a survey of economists taken by Bloomberg from Oct. 3 through Oct. 10. The consumer price index will rise 3.7 percent for this year, according to the survey. That would be the biggest gain since 6.1
percent in 1990.

The same survey showed economic growth would slow to a 3.1 percent pace the last three months of the year, from the third quarter's projected 3.4 percent annual rate. The Commerce Department will release its preliminary estimate of third-quarter growth on Oct. 28.
The consumer price index for September rose 1.2 percent, the biggest increase in 25 years, the Labor Department said on Oct. 14. Excluding energy and food, prices paid by consumers rose 0.1 percent.

``We are only now starting to hear indications of increased pricing power,'' Fed Governor Mark Olson said in a speech at Seattle University's Albers School of Business and Economics. ``But it is still anecdotal. We
don't see it across the board.''

Auto Prices

Finished energy product prices rose 7.1 percent last month, the biggest jump since October 1990, after climbing 3.7 percent in August. The price of gasoline rose 12.7 percent and the cost of natural gas rose 9.0 percent.

Passenger car prices rose 0.9 percent last month after falling 1.3 percent in August. The cost of computers fell 2.6 percent after a 0.4 percent decline the month before.

GE, based in Fairfield, Connecticut, said earnings in the third quarter rose 15 percent, helped by demand for products ranging from jet engines to credit cards and the sale of a stake in an insurance company. Revenue at the world's second-largest company by market value rose 9.4 percent.

Food prices rose 1.4 percent, following a 0.3 percent decrease in August, the government said.

Prices for capital equipment rose 0.3 percent, led by prices of trucks and power distribution equipment, following a decrease of 0.1 percent.
Hurricanes Katrina and Rita have cut oil output by 57.6 million barrels since Aug. 26, the U.S. Minerals Management Service said on Oct. 14.
Crude oil and gasoline prices rose on Oct. 17 on concern Tropical Storm Wilma may enter the Gulf of Mexico by the end of this week, further disrupting output of oil and gas.

``The shortage of natural gas is pretty acute and it's going to take a lot to correct that,'' Donald Blankenship, chief executive of Massey Energy Co., said in an interview on Oct. 10.

To contact the reporter on this story:Courtney Schlisserman in Washington cschlisserma@bloomberg.net.Last Updated: October 18, 2005 10:30 EDT

October 21st, 2005, 11:38 AM
October 21, 2005

More New York City Households Find Themselves Going Without

The number of low-income households in New York, including those with a full-time working adult, that have missed rent payments, delayed medical care or gone to a food pantry has risen significantly in the past two years, according to an annual survey released this week by the Community Service Society.

"Despite the economic recovery of the last two years, the poor are falling further behind," said David R. Jones, president of the society.

Wages in New York City have fallen by 5.5 percent for the lowest third of workers over the past few years, according to the organization's calculations.

In particular, health care has been an increasing challenge for poor people, as businesses have asked employees to help cover rising insurance costs. "For people who are at such low wage levels, they have to make the hard choice of going without health insurance or giving up their pay," said Nancy Rankin, the society's director of research.

The survey, conducted by an outside firm, was based on telephone interviews in July and August with 1,000 low-income families and 500 moderate- and higher-income families.

According to the survey, the percentage of low-income full-time employees without employer health benefits climbed to 69 percent from 23 percent last year. Only half of low-income full-time wage earners had health insurance of any sort, with the difference largely made up by Medicaid.

The survey found a significant rise in health-related hardships, with the percentage of low-income households that did not have a prescription filled doubling since last year to nearly 50 percent.

Copyright 2005 The New York Times Company

October 27th, 2005, 09:44 AM
Some companies are doing very well despite the war, three hurricanes, and skyrocketing prices. Anyone surprised?

October 27, 2005
Exxon Mobil Profit Soars on Oil Prices
Filed at 8:24 a.m. ET

NEW YORK (Reuters) - Exxon Mobil Corp., the world's largest publicly traded oil company, on Thursday reported quarterly profit surged 75 percent, pushed up by record crude oil and natural gas prices.
Net income rose to $9.9 billion, or $1.58 a share, in the third quarter from $5.68 billion, or 88 cents a share, a year earlier.

Excluding a gain of $1.62 billion from restructuring its stake in a Dutch gas transportation business, earnings were $1.32 per share. On that basis, analysts' average forecast was $1.39, according to Reuters Estimates.

The company's oil and gas production fell 4.7 percent from a year earlier, hurt by outages caused by Hurricanes Katrina and Rita.

The hurricanes ripped through the Gulf of Mexico in the third quarter, disrupting energy operations in the region and sending oil prices and refining margins sharply higher.

Exxon Mobil's capital expenditures jumped to $4.41 billion in the quarter from $3.63 billion a year earlier.

Shares of Exxon Mobil, the largest of the so-called ''super-major'' oil companies, rose more than 10 percent in the quarter, underperforming the broader Standard & Poor's integrated oil and gas index, which rose more than 13 percent.

Copyright 2005 Reuters Ltd.

October 27th, 2005, 10:50 AM
I feel so bad for E/M. I mean, after they lost so much during the Hurricanes....


November 2nd, 2005, 05:22 PM
White House opposes oil donations to heating fund

Wed Nov 2, 2005


WASHINGTON (Reuters) - The Bush administration opposes a Republican proposal that oil companies voluntarily contribute some of their record profits to a federal fund that helps poor Americans pay winter heating bills, Energy Secretary Sam Bodman said on Wednesday.

On Tuesday, Senate Finance Chairman Charles Grassley sent a letter to U.S. energy companies, urging them to donate 10 percent of their swelling profits to the Low Income Home Energy Assistance Program (LIHEAP).

Asked by reporters if the administration supported the plan, Bodman responded: "No, sir. I wouldn't support it. It is similar to a tax."

Bodman made his remarks after addressing an energy industry group.
Last year, the LIHEAP program spent $2.2 billion to help poor and elderly Americans pay their winter heating bills. Democrats say the fund should be doubled for this winter.

Bodman also said the White House was considering a variety of proposals to address high energy prices, including federal funding for LIHEAP, more offshore oil drilling, and creating a U.S. natural gas reserve that would be "analogous to the Strategic Petroleum Reserve," as well as a stockpile of refined products. Announcements on such initiatives would be ready in "weeks," he said.

© Reuters 2005. All rights reserved.

November 2nd, 2005, 05:28 PM
And the poor Red-Staters blindly agree, "the President opposes it, so I do too", even though they can't afford the oil prices.

December 7th, 2005, 06:58 PM
Entitlement-Driven Long-Term Budget Substantially Worse Than Previously Projected

by Brian M. Riedl
Backgrounder #1897
November 30, 2005


Federal budget projections consistently warn that America faces a future of unaffordable entitlement spending, deep federal debt, and economic stagna­tion unless lawmakers modernize runaway entitle­ment programs. This paper shows that the long-term budget picture may even be substantially worse than previously projected.

Specifically, a realistic budget projection shows that combined nominal Medicare, Social Security, and Medicaid spending will double over the next decade. Adding in the costs of the war on terrorism, Hurri­cane Katrina, and other congressional spending pri­orities pushes total 2015 federal spending well past $4 trillion and the budget deficit to $873 billion—a level that could lead to harmful tax increases.

The 2006–2050 budget picture is even more dis­mal. Because of the cost of fully funding Social Secu­rity, Medicare, and Medicaid, leading long-term budget projections have calculated that federal spending will increase from the current 20 percent of gross domestic product (GDP) to a peacetime high of nearly 33 percent of GDP by 2050.[1] (http://www.heritage.org/Research/Budget/bg1897.cfm#_ftn1)

Yet even that may be a severe underestimate. These projections assume slower entitlement growth than estimated by the Social Security and Medicare trust­ees as well as substantial reductions in defense and other spending. Most critically, they assume that the resulting unprecedented increase in the national debt will not affect interest rates. More realistic assumptions show that Social Security, Medicare, and Medicaid costs will leap from 8.4 percent of GDP to 18.9 percent by 2050. Unless lawmakers reform these programs, they will have to fund their costs by:

Raising taxes every year until federal taxes are 57 percent ($11,000 per household, adjusted into today’s economy)[2] (http://www.heritage.org/Research/Budget/bg1897.cfm#_ftn2) above the current levels;
Eventually eliminating every other federal program, including spending on defense, edu­cation, anti-poverty programs, and veterans benefits, by 2045; or
Running massive budget deficits (the status quo option). This is the most expensive option because it would cause the federal debt to increase from the current level of 40 percent of GDP to 500 percent of GDP. Beginning in 2025, just a small interest rate response would push federal spending to 44 percent of GDP by 2040 and 73 percent by 2050—levels twice as high as previous projections.
The data presented in this paper are not predic­tions of what will occur. They merely represent three painful possible outcomes if lawmakers choose to continue on the current course with Social Security, Medicare, and Medicaid. The data show that unreformed entitlements not only could cause significant economic pain, but also could eventually place the entire American economic and financial system in crisis. Modernizing entitlements and averting this calamity is the most important economic challenge of this era.

Full article here: http://www.heritage.org/Research/Budget/bg1897.cfm

December 8th, 2005, 09:23 AM
(One) Simple solution.

Regulate the medical industry, the single most profitable research industry in the world.

What is the use of giving $100 more a month to Medicaid if the pharmaceuticals just charge $100 more a month to buy their product?

December 15th, 2005, 08:33 AM
December 15, 2005

Trade Deficit Hits Record, Threatening U.S. Growth


WASHINGTON, Dec. 14 - The United States' trade deficit ballooned to a record in October, the government said Wednesday, with imports climbing much faster than exports even though prices for imported oil declined.

The trade deficit widened by $3 billion, to $68.9 billion, confounding forecasts on Wall Street that the gap would narrow and signaling that the nation's huge trade imbalance has not begun to stabilize.

The nation's trade deficit is on track to top $700 billion this year, up from last year's record of $618 billion, and its foreign indebtedness is rising at least as rapidly.

Because imports are about 60 percent higher than exports, the United States would need to increase exports more, simply to keep its imbalances from growing even larger.

The widening gap is likely to reduce the nation's overall growth in the final quarter of this year. Morgan Stanley reduced its forecast for growth this quarter to 3 percent, from 3.4 percent on Wednesday, and Merrill Lynch shaved its already pessimistic forecast to just 2.3 percent.

News of the deficit also ignited a fresh round of political accusations in Washington over trade and globalization, with Democrats accusing President Bush of being soft on countries like China.

The United States stepped up its purchases from every part of the world and in most categories of goods, even as global demand softened, the Commerce Department reported.

The trade deficit with China through October hit $166.8 billion, exceeding the $162 billion deficit with China for all of last year.

Over all, the Commerce Department estimated that American exports grew by 1.7 percent in October, while imports climbed 2.7 percent.

But exports were weaker than the headline numbers implied, because virtually all of the increase stemmed from a big increase in aircraft sales after the end of a strike at Boeing.

Excluding aircraft, exports of capital goods and industrial goods were essentially flat. Exports of consumer goods declined 5.6 percent, to $9.37 billion.

Many analysts had expected the trade deficit to narrow slightly, partly because of the increase in airplane exports and partly because oil prices declined slightly during the month.

But American thirst for imported petroleum shot up 13 percent, largely to make up for the loss of production in the Gulf of Mexico caused by Hurricane Katrina.

The United States' trade deficit with the Organization of the Petroleum Exporting Countries totaled $77 billion for the first 10 months of this year, up from $59.1 billion for the same period last year. The higher deficit is a result of both higher oil prices over the last year and higher volumes of imports. But that was only part of the reason that the trade balance deteriorated. The trade balance for nonpetroleum products for the first 10 months of this year has widened to $447 billion, up from $400 billion last year.

Representative Benjamin L. Cardin of Maryland, a top Democratic point man on trade issues, accused the Bush administration of failing to create an effective strategy for dealing with unfair trade practices.

Representative Marcy Kaptur, an Ohio Democrat, stepped up her call for legislation to force the administration to take action against countries that consistently run trade surpluses with the United States of more than $10 billion a year.

Even some Republicans expressed dismay at the size of the deficit.

"Small-business owners in Maine and across the nation are fighting to remain competitive with countries such as China that flagrantly disregard fair trade practices," said Senator Olympia J. Snowe, Republican of Maine.

The Treasury secretary, John W. Snow, said that the administration was pushing countries like China, but added that the trade deficit was largely a result of slow growth in other countries.

"If our major industrialized trading partners were growing faster, the U.S. wouldn't have such a large trade gap," Mr. Snow said at a briefing on the economy with Commerce Secretary Carlos M. Gutierrez and Labor Secretary Elaine L. Chao.

The American economy grew at an annual rate of 3.8 percent in the first three quarters of this year, far faster than either the European Union or Japan.

A growing number of economists worry that the United States has become locked into being the world's consumer of last resort, a role that is leading to ever higher levels of foreign indebtedness financed in large part by central banks of China, Japan and other Asian countries.

Robert Sinche, a currency strategist at Bank of America, predicted on Wednesday that foreigners would own about $4 trillion in American assets, about 30 percent of its gross domestic product, by the end of 2006.

* Copyright 2005The New York Times Company

December 15th, 2005, 09:59 AM
Lesson learned?

Buy all the electronics you can now, and then yell/scream/protest the unfair labor practices around the world.

Noone likes the idea of asian sweatshops and child labor but sure as hell they want their Plasma TVs!!!!!!

May 16th, 2006, 10:03 PM
This report on FRONTLINE (http://www.pbs.org/wgbh/pages/frontline/retirement/) might send chills down your spine ...

(and give you another reason to vote out the bums in D.C) :

Can You Afford to Retire?

Baby boomers are heading for a shock as they hit retirement:

vanishing pensions and inadequate 401(k) savings.
What can be done?

May 17th, 2006, 09:16 AM
In all fairness we have to start looking at this in a different way.

Retirement was set up so that people who were too old to be productive members of society were given a rest. Every society has them, and they are usually the ones that can no longer bear the burden of the labor that the society depends apon.

Now we get to a point where we think that Retirement is a cdelebration of the "Golden Years". A time where we can do nothing. Not because we cant do anything anymore, but because we chose to.

Now the difficulty in that comes own to several things. First, our labor market has changed slightly for many people, there is a much higher percentage of white collar labor than there was in the past. Labor not requiring a strong lifter or an energetic individual.

Second, people are LIVING longer. Not just longer, but BETTER. You see 65 year olds still playing softball, jogging, and getting out there. While this is a good thing, and we all want to live longer, the 18 year figure of life after retirement is a reality now for many.

When you DIED 5-10 years after retirement (on average), companies could offer pension plans and the like. But that extra life, combined with things like "golden parachutes" are the silver bullet for many companies plans.

We need to, sadly, rethink our entire outlook on retirement. The easiest thing is to just raise the age of benefit eligability. Many people (myself included) will bemoan the fact that we will have to work longer than our parents and grandparents, but if we want programs like SS to survive we have to make sure that it is not paying us for a full 1/3 of our natural lives!

BTW, I, for one, have been cranking as much as I can into 401K AND Roth. I have been telling the youngsters here at the firm to start doing the same as well (even a small % now will ammount to so much more just a little way down the line).

I am not happy that I have to be responsible for all of it, but I am not going to depend on anything else to keep me going after I retire. I don't think any of us should, or can afford to. :(

May 17th, 2006, 10:19 AM
Second, people are LIVING longer. Not just longer, but BETTER. You see 65 year olds still playing softball, jogging, and getting out there. While this is a good thing, and we all want to live longer, the 18 year figure of life after retirement is a reality now for many.

When you DIED 5-10 years after retirement (on average), companies could offer pension plans and the like. But that extra life, combined with things like "golden parachutes" are the silver bullet for many companies plans.

We need to, sadly, rethink our entire outlook on retirement. The easiest thing is to just raise the age of benefit eligability. Many people (myself included) will bemoan the fact that we will have to work longer than our parents and grandparents, but if we want programs like SS to survive we have to make sure that it is not paying us for a full 1/3 of our natural lives!

BTW, I, for one, have been cranking as much as I can into 401K AND Roth. I have been telling the youngsters here at the firm to start doing the same as well (even a small % now will ammount to so much more just a little way down the line).

I am happy that my company has 5% match for 401K. Still, you need to have a lot of money to retire these days. Medical expenses are very high and with Medicare covering only 80%, it's very difficult to survive, forget live normally when you retire unless you have loads of money saved up. Or, people are forced to give all the money to their kids, pretend they are poor and receive Medicaid. And I can't blame them: the expenses they face are overhwhelming. I wish I had control over the money I am giving the federal government in soecial security taxes. I think I can make a better use of that money myself...

May 17th, 2006, 10:26 AM
I agree with Ninja, but as the program so clearly points out the vast majority of working people are overwhelmed by the intricacies / multitude of choices regarding 401(k) investing. Also, only those on the high end of earners are actually able to put enough $$ into the 401(k)s to make them viable sources of income in the later years.

As one commentator points out: "Retirement" = contined work, as the only way that the vast majority of people will have enough $$ to eat / live / etc., despite $$ from Social Security / (401(k), is for them to go on working and bring in a steady income, however paltry it may be.

Many people have only enough in their 401(k) to last them 5-7 years (that is on the high end -- many others only have enough to last 2-3 years and that does not include emergency situations where costs jump up), but the life expectancy beyond reitrement age is now ~ 14-16 years. For many the job options at 65+ years of age will be low paying & limited in scope. Couple that with the increase in health problems as the average person ages and the scenario paints a fairly bleak picture of what life will be like for aging baby boomers (and later generations).

May 17th, 2006, 11:55 AM
$14K/yr max 401, $4K/yr max ROTH.....

/me makes PB&J for lunch.

TTYL, I gotta go eat!

May 17th, 2006, 12:22 PM
$14K/yr max 401, $4K/yr max ROTH.....

/me makes PB&J for lunch.

TTYL, I gotta go eat!\

The problem with Roth is that after certaini income level, you cannot contribute to it at all. And you're married and make together over 159,000, you cannot contribute anything to Roth IRA and after 150K, there's a phaseout period.

May 17th, 2006, 02:35 PM

The problem with Roth is that after certaini income level, you cannot contribute to it at all. And you're married and make together over 159,000, you cannot contribute anything to Roth IRA and after 150K, there's a phaseout period.

I am QUITE aware of that... :(

It is odd that they limit the contribution based on your salary. I mean, it is not as if rich people would get richer because of this!

Think of it this way. You are only allowed a max of $4K a year. Even after 30 years, that is only 120K! That is a lot to you or me, but to a major investor that is earning over 100K by himself, that is chicken feed.

Why then, do they limit the ammount you can earn?

And what is this BS lower limit for married couples? Is the government still legislating to keep the women-folk at home? WAKE UP AND SMELL THE NEW MILLENIUM!!!

Hell, you can smell back to the 80's if you want, same story. Newsflash, women are earning more money now! :P

May 18th, 2006, 04:49 PM
one way to help social security but not solve the problem is to end the "cap" on the amount taxable withholdings. The max that can be taken from a person, no matter how much is $11,000. SO basically a guy like Bill Gates only contributes money from his pay up to that number and thats its. What they should do is eliminate that cap, take a certain percentage of a persons salary, as per what he earns, with no cap.

Very simple and that would give SS manymore years to hopefully come up with a true solution

May 19th, 2006, 10:40 AM
Yes and no Kliq....

Why should these guys be forced to pay into a program that they will never be using?

While I can see the limit to contribution elegibility for 401K and ROTH being based on salary as unfair, I cannot see why these guys like Bill should be paying $1M a year (or whatever) to a program they will never see anything from.

There has to be SOME limit to socialized retirement program funding.....

May 23rd, 2006, 01:24 AM
I am not a economic planner, but what happened to personal savings rates??? I heard that the U.S. has a negative savings rate!!!! Ninja, could you explain this? Does this mean that on average an American is more likely to be in debt than debt-free? If so, what are the implications of our society, when these people stop living pay-check to pay-chek retire. Will they have to use the megar social securitiy benefits to pay off creditors?

Will politicians, eager to get their vote, pander to them and increase the tax burden on the working. Is that even possible.

May 23rd, 2006, 09:37 AM
Credit and debt is the worst offender.

And numbers can be misleading. Some people are ruining the average for all.

But the debt is still there.

Oddly enough, if people did not spend this much, tehre would be less jobs available for the general public to begin with. So I guess we are sort of the snake eating its own tail. Once we reach the back of our own neck we may finally see this (as a society) and stop, but it would still be too late.....

I am just trying to keep my portfolio diversified with plenty of foreign stock... :(

May 23rd, 2006, 10:03 AM
Yes and no Kliq....

Why should these guys be forced to pay into a program that they will never be using?

While I can see the limit to contribution elegibility for 401K and ROTH being based on salary as unfair, I cannot see why these guys like Bill should be paying $1M a year (or whatever) to a program they will never see anything from.

There has to be SOME limit to socialized retirement program funding.....

For most people that problem is that they cannot contribute 14K every year to 401K because they wouldn't have enough money. But if you really have enough to max out on your IRA and 401K contributions (14 + 4 = 18K), you can put the rest into the tax-deferred annuities.

May 23rd, 2006, 10:32 AM
You missed the point.

Why make a limit on those two funds based on how much you are earning?

Tax deferred annuities are still post-tax dollars AND tehy are taxed on withdrawl.

401 is not taxed now, but later, and ROTH is not taxed later.

Why start playing double fiddle when it would not ammount to much $$ anyway? Encourage people of all $$ levels to contribute to their 401 and ROTH.

You think someone who is earning a combined salary of 180K a year, living in NYC is rich and will not need retirement funding or SS? Why make it so him and his wife cannot place ANY money in ROTH?

June 15th, 2006, 09:33 AM
Bush Administration Quietly Plans NAFTA Super Highway

by Jerome R. Corsi
Jun 12, 2006

Quietly but systematically, the Bush Administration is advancing the plan to build a huge NAFTA Super Highway, four football-fields-wide, through the heart of the U.S. along Interstate 35, from the Mexican border at Laredo, Tex., to the Canadian border north of Duluth, Minn.


http://www.nascocorridor.com/new_home_images/nasco_home_page_09.jpg (http://www.nascocorridor.com/)

Once complete, the new road will allow containers from the Far East to enter the United States through the Mexican port of Lazaro Cardenas, bypassing the Longshoreman’s Union in the process. The Mexican trucks, without the involvement of the Teamsters Union, will drive on what will be the nation’s most modern highway straight into the heart of America. The Mexican trucks will cross border in FAST lanes, checked only electronically by the new “SENTRI” system. The first customs stop will be a Mexican customs office in Kansas City, their new Smart Port complex, a facility being built for Mexico at a cost of $3 million to the U.S. taxpayers in Kansas City.

As incredible as this plan may seem to some readers, the first Trans-Texas Corridor segment of the NAFTA Super Highway is ready to begin construction next year. Various U.S. government agencies, dozens of state agencies, and scores of private NGOs (non-governmental organizations) have been working behind the scenes to create the NAFTA Super Highway, despite the lack of comment on the plan by President Bush. The American public is largely asleep to this key piece of the coming “North American Union (http://www.humaneventsonline.com/article.php?id=14965)” that government planners in the new trilateral region of United States, Canada and Mexico are about to drive into reality.

Just examine the following websites to get a feel for the magnitude of NAFTA Super Highway planning that has been going on without any new congressional legislation directly authorizing the construction of the planned international corridor through the center of the country.

NASCO, the North America SuperCorridor Coalition Inc. (http://www.nascocorridor.com/), is a “non-profit organization dedicated to developing the world’s first international, integrated and secure, multi-modal transportation system along the International Mid-Continent Trade and Transportation Corridor to improve both the trade competitiveness and quality of life in North America.” Where does that sentence say anything about the USA? Still, NASCO has received $2.5 million in earmarks from the U.S. Department of Transportation to plan the NAFTA Super Highway as a 10-lane limited-access road (five lanes in each direction) plus passenger and freight rail lines running alongside pipelines laid for oil and natural gas. One glance at the map of the NAFTA Super Highway on the front page of the NASCO website (http://www.nascocorridor.com/) will make clear that the design is to connect Mexico, Canada, and the U.S. into one transportation system.
Kansas City SmartPort Inc. (http://www.kcsmartport.com/) is an “investor based organization supported by the public and private sector” to create the key hub on the NAFTA Super Highway. At the Kansas City SmartPort, the containers from the Far East can be transferred to trucks going east and west, dramatically reducing the ground transportation time dropping the containers off in Los Angeles or Long Beach involves for most of the country. A brochure on the SmartPort website (http://www.kcsmartport.com/pdf/SmtPrtOneRoute.pdf) describes the plan in glowing terms: “For those who live in Kansas City, the idea of receiving containers nonstop from the Far East by way of Mexico may sound unlikely, but later this month that seemingly far-fetched notion will become a reality.”
The U.S. government has housed within the Department of Commerce (DOC) an “SPP office” that is dedicated to organizing the many working groups laboring within the executive branches of the U.S., Mexico and Canada to create the regulatory reality for the Security and Prosperity Partnership. The SPP agreement (http://www.spp.gov/) was signed by Bush, President Vicente Fox, and then-Prime Minister Paul Martin in Waco, Tex., on March 23, 2005. According to the DOC website, a U.S.-Mexico Joint Working Committee on Transportation Planning has finalized a plan (http://www.spp.gov/report_to_leaders/index.asp?dName=report_to_leaders) such that “(m)ethods for detecting bottlenecks on the U.S.-Mexico border will be developed and low cost/high impact projects identified in bottleneck studies will be constructed or implemented.” The report notes that new SENTRI travel lanes on the Mexican border will be constructed this year. The border at Laredo should be reduced to an electronic speed bump for the Mexican trucks containing goods from the Far East to enter the U.S. on their way to the Kansas City SmartPort.
The Texas Department of Transportation (TxDOT) is overseeing the Trans-Texas Corridor (http://www.keeptexasmoving.org/about/) (TTC) as the first leg of the NAFTA Super Highway. A 4,000-page environmental impact statement (http://www.keeptexasmoving.com/projects/ttc35/deis.aspx) has already been completed and public hearings are scheduled (http://www.keeptexasmoving.org/publications/files/NR%20announce%20pub%20hearing%20list.pdf) for five weeks, beginning next month, in July 2006. The billions involved will be provided by a foreign company, Cintra Concessions de Infraestructuras de Transporte, S.A. of Spain. As a consequence, the TTC will be privately operated, leased to the Cintra consortium to be operated as a toll-road (http://www.keeptexasmoving.org/pdfs/projects/ttc35/final%20cda%20overview.pdf).The details of the NAFTA Super Highway are hidden in plan view. Still, Bush has not given speeches to bring the NAFTA Super Highway plans to the full attention of the American public. Missing in the move toward creating a North American Union is the robust public debate that preceded the decision to form the European Union. All this may be for calculated political reasons on the part of the Bush Administration.

A good reason Bush does not want to secure the border with Mexico may be that the administration is trying to create express lanes for Mexican trucks to bring containers with cheap Far East goods into the heart of the U.S., all without the involvement of any U.S. union workers on the docks or in the trucks.

Copyright © 2006 HUMAN EVENTS. All Rights Reserved.http://www.humaneventsonline.com/track/__utm.gif

June 15th, 2006, 10:36 AM
A good reason Bush does not want to secure the border with Mexico may be that the administration is trying to create express lanes for Mexican trucks to bring containers with cheap Far East goods into the heart of the U.S., all without the involvement of any U.S. union workers on the docks or in the trucks.

Copyright © 2006 HUMAN EVENTS. All Rights Reserved.http://www.humaneventsonline.com/track/__utm.gif

I think it would be great if our countries were connected by this kind of superhighway. But I doubt that most of what's described in this article is even true. They are building a huge highway in Texas and just that will take many many years. As far as bypassing a union, it would only be an important news item for the members of that union. Most of us would benefit from getting a construction project that has a market cost that is not inflated by union benefits and above-market wages. But it will never happen. Unions in this country are still far too powerful to allow anything like that - unfortunately.

June 15th, 2006, 12:00 PM
I doubt that most of what's described in this article is even true...

Your doubts are seemingly unfounded.

Did you bother to look at the website?

Check out the Board of Directors: http://www.nascocorridor.com/pages/about/board_members.htm

June 15th, 2006, 12:09 PM
More from the links in the article:


Prosperity Agenda
Security and Prosperity Partnership Of North America

Published by the White House Office of the Press Secretary, March 23, 2005 (http://www.whitehouse.gov/news/releases/2005/03/20050323-1.html)

Promoting Growth, Competitiveness and Quality of Life

To enhance the competitive position of North American industries in the global marketplace and to provide greater economic opportunity for all of our societies, while maintaining high standards of health and safety for our people, the United States, Mexico, and Canada will work together, and in consultation with stakeholders, to:

Improve Productivity

Regulatory Cooperation to Generate Growth

Lower costs for North American businesses, producers, and consumers and maximize trade in goods and services across our borders by striving to ensure compatibility of regulations and standards and eliminating redundant testing and certification requirements.
Improve the safety and efficiency of North America's transportation system by expanding market access, facilitating multimodal corridors, reducing congestion, and alleviating bottlenecks at the border that inhibit growth and threaten our quality of life

Reduce the Costs of Trade

Efficient Movement of Goods

June 15th, 2006, 12:43 PM
Your doubts are seemingly unfounded.

Did you bother to look at the website?

Check out the Board of Directors: http://www.nascocorridor.com/pages/about/board_members.htm

Looks good. So this is great. The easier it is to move goods between our 3 countries, the better it is for all of us.

June 15th, 2006, 12:50 PM
Am familiar with the Trans-Texas corridor project(s), which are endorsed by the current Texas Governor, Rick Perry. Plans call for superhighways posted at 85 MPH.

You may know that Perry signed last year's 80 MPH speed limit bill. 80 MPH speed limits are now in effect and posted on some 500+ miles of Texas highways in the far western part of that state.

I used to live in Texas. The state truly is B-I-G and wide open. Its residents are serious about getting from Point A to B in the shortest possible time.

June 15th, 2006, 01:48 PM
Am familiar with the Trans-Texas corridor project(s), which are endorsed by the current Texas Governor, Rick Perry. Plans call for superhighways posted at 85 MPH.

You may know that Perry signed last year's 80 MPH speed limit bill. 80 MPH speed limits are now in effect and posted on some 500+ miles of Texas highways in the far western part of that state.

I used to live in Texas. The state truly is B-I-G and wide open. Its residents are serious about getting from Point A to B in the shortest possible time.

I think it's a great news for Texas. It would also be good if they promoted fuel-efficient vehicles a bit better. Running huge SUVs at 85 miles per hour is not the best thing for the environment.

June 22nd, 2006, 12:51 PM
More from CNN / Lou Dobbs from 6.21.06 on the "Security and Prosperity Partnership of North America" plan (which includes the nascocorridor.com scheme) from the new Gang of Three (Bush / Fox / Martin):

DOBBS: The Bush administration's open-borders policy and its decision to ignore the enforcement of this country's immigration laws is part of a broader agenda. President Bush signed a formal agreement that will end the United States as we know it, and he took the step without approval from either the U.S. Congress or the people of the United States.

Bill Tucker reports.


BILL TUCKER, CNN CORRESPONDENT (voice-over): The Security and Prosperity Partnership of North America sounds benign, hardly like a policy that critics call NAFTA on steroids. It's a deal that few have even heard of.

REP. MARCY KAPTUR (D), OHIO: It's being done, again, by very few people at the very top, on behalf of the investment class. But the working class of people, political officials across our country from communities, from cities and so forth, they don't know anything about this.

TUCKER: Yet, it was agreed to by Mexico's President Fox, Canada's Prime Minister Martin, and President Bush in 2005.

The administration officials counter their critics by saying everything about SPP is on the White House Web site. And they say the partnership is not a treaty, but more of an outline of priorities between the United States, Mexico and Canada. Still, some wonder why there haven't been public discussions about the goals being pursued. UNIDENTIFIED FEMALE: This SPP includes, for instance, a committee that is sitting down to harmonize our meat inspection and food safety. So, how far away from a trade agreement can your dining room table and what you feed your kids be?

TUCKER: Other parts of the agreement mention border security as an issue, which include all of North America. In fact, the name of the agreement is not Security and Prosperity of the United States, but of North America.

PETER MORICI, PROFESSOR OF INTERNATIONAL BUSINESS, UNIVERSITY OF MARYLAND: When we elect officials, we expect them to act on our behalf. When we get involved in cooperative frameworks with other countries for joint regulation of fisheries or rail transportation or the skies, we're basically sharing our sovereignty with that government and outsourcing some of what we give our elected officials.

TUCKER: As disturbing as some find SPP, there is legislation in the House introduced by Florida's Katherine Harris that closely resembles the goals of the partnership.


TUCKER: Included in that bill is a section which calls for the securing of Mexico's southern border by the United States and Canada.

Lou, that's not the border with the United States. That's the border they share with Belize and Guatemala.

DOBBS: The idea that the White House would respond that this is on their Web site, this involves intricate workings amongst the Commerce Department of this country and Canada and Mexico's, of course.

A regional prosperity and security program? This is absolute ignorance. And the fact that we are -- we reported this, we should point out, when it was signed. But, as we watch this thing progress, these working groups are continuing. They're intensifying. What in the world are these people thinking about?

TUCKER: Well, they say, look, these are a declaration and an outline of our priorities.

And when I called them today, Lou, they said I was the first phone call they had received literally since the deal was first signed. So, people are not paying attention. And they're letting them, in fact, get away with this.

DOBBS: You know, I was asked the other day about whether or not I really thought the American people had the stomach to stand up and stop this nonsense, this direction from a group of elites, an absolute contravention of our law, of our Constitution, every national value.

And I hope, I pray that I'm right when I said yes. But this is -- I mean, this is beyond belief.

Bill Tucker, thank you very much.

It brings us to the subject of our poll tonight: Do you think maybe somebody should take a vote if we're going to merge the United States with Canada and Mexico, maybe, you know, people like you and me vote? Yes or no. Please cast your vote at LouDobbs.com. We will have the results here later in the broadcast.


© 2006 Cable News Network LP, LLLP

June 22nd, 2006, 12:59 PM
Dobbs is hardly a logical person. Opening borders wider may not be a bad thing. One of the reasons illegal immigrants never go back to Mexico is because they won't be able to return to their jobs in the US. Imagine a completely open border between US and Mexico or partially opened one (easy access for potential, pre-screened Mexican workers): it will make our economy only stronger.

June 22nd, 2006, 03:36 PM
Despite what Bush / White House say that this is not a "Treaty" but just a trade agreement: This WH is writing long-term policy in contract with foreign government(s), and so far doing so without either the necessary advice or consent of the Senate, which makes the action UNCONSTITUTIONAL:

Article II, Section 2, Clause 2, of the U.S. Constitution gives the president the power to negotiate and ratify treaties, but he must obtain the advice and consent of the Senate (http://www.answers.com/topic/united-states-senate)(in practice solicited only after negotiation); two-thirds of the senators present must concur. Article I, Section 10, of the Constitution forbids the states to enter into a "treaty, alliance, or confederation," although they may enter into an "agreement or compact" with other states, domestic or foreign, but only with the consent of Congress.

June 22nd, 2006, 05:20 PM
Despite what Bush / White House say that this is not a "Treaty" but just a trade agreement: This WH is writing long-term policy in contract with foreign government(s), and so far doing so without either the necessary advice or consent of the Senate, which makes the action UNCONSTITUTIONAL:
Article II, Section 2, Clause 2, of the U.S. Constitution gives the president the power to negotiate and ratify treaties, but he must obtain the advice and consent of the Senate (http://www.answers.com/topic/united-states-senate)(in practice solicited only after negotiation); two-thirds of the senators present must concur. Article I, Section 10, of the Constitution forbids the states to enter into a "treaty, alliance, or confederation," although they may enter into an "agreement or compact" with other states, domestic or foreign, but only with the consent of Congress.

If you're right, you have a ground-breaking lawsuit on your hands. Where are the ambulance-chasing attorneys when you need them? :)

June 22nd, 2006, 06:25 PM
Whatever this plan is, one thing is for sure: it can't be good for the coastal port cities.
George is once again, looking out for his Texas.
Why am I not surprised?
Can't wait until this sorry excuse for a human being leaves office.

June 25th, 2006, 05:38 PM
^ You can say that again...

Holly molly.. Did I just agree with Antinimby?...:D

June 26th, 2006, 12:21 AM
Where are the ambulance-chasing attorneys when you need them? :)

Huh.... what.... I was in the bathroom.. did somebody call me?:D

June 26th, 2006, 03:45 PM
^ You can say that again...
Holly molly.. Did I just agree with Antinimby?...:DI see you are starting to gain some senses.

June 26th, 2006, 09:38 PM
I see you are starting to gain some senses.

You really think so?..:)))))

July 21st, 2006, 09:07 AM
Bush Administration Quietly Plans NAFTA Super Highway


Quietly but systematically, the Bush Administration is advancing the plan to build a huge NAFTA Super Highway, four football-fields-wide, through the heart of the U.S. along Interstate 35, from the Mexican border at Laredo, Tex., to the Canadian border north of Duluth, Minn.


Texas Farmers Furious Over Superhighway

Newsvine.com (http://www.newsvine.com/_news/2006/07/20/294741-texas-farmers-furious-over-superhighway)
July 20. 2006

HILLSBORO, TEXAS — Leroy Walters has survived many a threat on the farm that has been in his family for 120 years — droughts, hailstorms, tornadoes, grasshopper attacks.

But now he sees a manmade danger on the horizon: a colossal, 600-mile superhighway that will plow clear across the state of Texas, perhaps cutting through Walters' sorghum and corn fields, obliterating the family's houses and robbing his grandchildren of their land.

"I don't think they're going to want to pay a toll to go across this land," he said. "They want to enjoy it free, as Texans should enjoy it."

That kind of fear and anger among farmers and other landowners across the Texas countryside could become a political problem for Republican Gov. Rick Perry as he runs for re-election in November.

It was Perry who proposed the Trans Texas Corridor in 2002, envisioning a combined toll road and rail system that would whisk traffic along a megahighway stretching from the Oklahoma line to Mexico.

The Oklahoma-to-Mexico stretch would be just the first link in a 4,000-mile, $184 billion network. The corridors would be up to a quarter-mile across, consisting of as many as six lanes for cars and four for trucks, plus railroad tracks, oil and gas pipelines, water and other utility lines, and broadband cables.

http://www.nascocorridor.com/new_home_images/nasco_home_page_09.jpg (http://www.nascocorridor.com/)

The exact route for the cross-Texas corridor has not yet been drawn up, though it will probably be somewhere within a 10-mile-wide swath running parallel to Interstate 35. Whatever course it takes, it is clear many farmers and property owners will lose their land, though they will be compensated by the state. Construction could begin by 2010.

The opposition comes in several forms: Some see it as an assault on private property rights; some object to putting the project in foreign hands (it will be built and operated by a U.S.-Spanish consortium); and some see the project as an affront to open government because part of the contract with Cintra-Zachry is secret.

Of Perry's major opponents — Democrat Chris Bell and independents Carole Keeton Strayhorn and Kinky Friedman — Strayhorn has stirred the most fury.

At campaign stops she calls the plan the "Trans Texas Catastrophe," a "$184 billion boondoggle" and a "land grab" of historic proportions. She refers to Perry's appointees on the transportation commission as "highway henchmen."
She lets loose with Texas-twanged jabs at the contract with the "foreign" Cintra-Zachry.

"Texans want the Texas Department of Transportation, not the European Department of Transportation," she says, often to loud applause, whoops and hollers.

Cintra-Zachry is paying $7.2 billion to develop the first segment. For that, it will get to operate the road and collect tolls for years to come. It is part of a growing privatization trend in the United States.

A week ago, Strayhorn picked up a $6,500 campaign donation and endorsement from the Blackland Coalition, a group of anti-corridor farmers who work the rich black soil of central Texas.

Coalition chairman Chris Hammel said Texas needs a new governor who will halt the corridor project, start over and do it right. "One man started it with a pen. One person with a different pen could stop it," he said.

Perry's spokesman, Robert Black, dismissed suggestions that the toll road will hurt the governor's re-election campaign.

"The governor recognizes the concerns that rural Texans have. Remember, he's from rural Texas," Black said. "But he also believes that you have people out there who are spreading bad information."

Supporters say the corridors are needed to handle the expected NAFTA-driven boom in the flow of goods to and from Mexico and handle Texas' growing population.

Despite a state attorney general's ruling that the Cintra-Zachry contract be made public, the Perry administration has gone to court to prevent the disclosure of what is says is proprietary information.

"We don't know for sure whether this is a concept that we can endorse or not because we have not seen it," complained Mayor Will Lowrance of Hillsboro, a town of 8,200 people 55 miles south of Dallas. "I happen to still believe in the open records law in Texas."

Hill County Judge Kenneth Davis, who like Lowrance is a conservative Democrat supporting Strayhorn, agreed with Lowrance and added: "If we're going to build a highway in Texas, let's build it with Texas money, not a foreign company's money."

Both local leaders dislike the rural location under consideration for the corridor route because it bypasses Hillsboro.

On the Net:
Trans Texas Corridor: http://www.keeptexasmoving.com (http://www.keeptexasmoving.com/)
Blackland Coalition: http://www.blacklandcoalition.org (http://www.blacklandcoalition.org/)

© 2006 The Associated Press

July 24th, 2006, 09:54 PM
Cities Shed Middle Class, and Are Richer and Poorer for It
"With a dwindling middle class, rich and poor become more separate."

(http://www.nytimes.com/2006/07/23/weekinreview/23scott.html)By JANNY SCOTT
July 23, 2006

SOME big American cities are flourishing as at no time in recent memory.

Places like New York and San Francisco appear to be richer and more dazzling than ever: crime remains low, new arrivals pour in, neighborhoods have risen from the dead. New York is in the throes of the biggest building boom in 30 years, its population at an all-time high and climbing. Mayor Michael R. Bloomberg proudly promotes his city as “a luxury product.”

But middle-class city dwellers across the country are being squeezed.

This time, they are being squeezed out by the rich as much, or more so, as by the poor — a casualty of high housing costs and the thinning out of the country’s once broad economic middle. The percentage of middle-income neighborhoods in metropolitan areas like Los Angeles, Chicago and Washington has dropped since 1970, according to a recent Brookings Institution report.

The percentage of higher-income neighborhoods in many places has gone up.
In New York, the supply of apartments considered affordable to households with incomes like those earned by starting firefighters or police officers plunged by a whopping 205,000 in just three years, between 2002 and 2005.

Does it matter if there is less room for a middle class? In strictly economic terms, plenty of economists say, it may not. But they also say that in the long run, those cities may become places where they and other city lovers would prefer not to live.

Obviously, cities benefit economically from the presence of the rich. Tax revenues go up when the rich pour into what some economists now call “superstar cities,” places like New York, San Francisco, San Diego, Boston and Washington that attract highly skilled people but have limits on the ability to build housing. In New York, fewer than 13,000 of the 2.3 million households that pay income tax are expected to account for nearly 30 percent of city income tax paid in 2006.

In the San Francisco Bay Area, the percentage of households earning more than $100,000 a year rose to over 30 percent in 2000 from approximately 7 percent in 1970, said Joseph Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. “Is that area worse off?” he asked. “At least so far, there’s a lot of evidence that economically they’re better off. Land prices are really high, lots of people want to move there.”


Edward L. Glaeser, a Harvard economist who studied 300 large cities with a range of levels of income inequality in the 1960’s and 1970’s, says he found little evidence that those levels later affected the growth of housing prices, income or population there.

Of course, cities need police officers, firefighters, teachers. But as long as they can get the labor they need from somewhere nearby, some economists say, middle-class shrinkage may not hurt. In Southern California, developers import construction workers from Las Vegas and put them up in hotels; costs go up but rich clients can pay. Firefighters who want to live in high-priced cities can work two jobs, said W. Michael Cox, chief economist for the Federal Reserve Bank of Dallas. “I think it’s great,” he said. “It gives you portfolio diversification in your income.” Pay for essential workers like plumbers and cabdrivers will tend to go up, he said.

Professor Glaeser said: “There’s no obvious smoking gun saying cities will be substantially worse off. There’s a whole lot of America that does a very good job of taking care of the middle class. The great sprawling edge cities of the American hinterland provide remarkably cheap housing, fast commutes, decent public services and incredibly cheap products available in big box stores. As a New Yorker, I understand the view that exile from New York is consignment to hell; but that’s not accurate. The majority of middle-class people that have moved out have presumably found themselves better lives out there.”

But sociologists and many economists believe that there can be non-economic consequences for cities that lose a lot of middle-income residents. The disappearance of middle-income neighborhoods can limit opportunities for upward mobility, the authors of the Brookings study said. It becomes harder for lower-income homeowners to move up the property ladder, buy into safer neighborhoods, send their children to better schools and even make the kinds of personal contacts that can be a route to better jobs. The Brookings study, which defined moderate-income families as those with incomes between 80 and 120 percent of the median for each area, found that the percentage of middle-income neighborhoods in the 100 largest metropolitan areas had dropped to 41 percent from 58 percent between 1970 and 2000. Only 23 percent of central city neighborhoods in 12 large metropolitan areas were middle income, down from 45 percent in 1970.

Meanwhile, New York University researchers reported last month that the number of apartments affordable to households making 80 percent of the median household income in New York City dropped by a fifth between 2002 and 2005. Nationally, median household income ranges from just above $20,000 in Miami to around $40,000 in New York and Boston and about $60,000 in San Francisco.

With a dwindling middle class, rich and poor become more separate. Alan Berube, an author of the Brookings study, said a two-tiered marketplace can develop: Whole Foods for the upper classes, bodegas for the lower, with no competition from stores courting the middle. “If the two models are check cashers on the one hand and major national financial institutions on the other, who’s thinking about how to hold down costs for the basic consumer?” he asked.

School systems may suffer, too. While some upper-middle-class families rely on the public schools, many that can afford private-school education opt out. Urban school systems tend to be dominated by middle- and lower-income families. Middle-income parents have the ability and leverage to demand improvements. Similarly, studies show that lower-income students benefit by being in economically mixed schools.

Politics can become polarized without the moderating force of an engaged middle, sociologists and economists said. And while cities can import middle-level workers, there is a cost in productivity, family time and other intangibles.

“People have a stake in the place that they’re living in,” said Chris Mayer, a professor at Columbia Business School. “If you have a police and firefighting force saving their city as opposed to somebody else’s city, it makes a difference. In the same sense, local shopkeepers just seem to be better. What happened on 9/11 was really about ‘our city.'"

Mr. Mayer, who recently moved with his wife and three young children to New York, said he believed that it was important for children to grow up in a place that is racially, ethnically and economically diverse. He calls those places more vibrant. In most places, the upper middle class is less diverse than the middle, he said. New York would be less attractive to him without its still-expansive and lively middle.

“This trend toward living and interacting with people who are like you is intensifying a lot,” said Professor Gyourko, who lives in the affluent suburb of Swarthmore, Pa. “I do not meet the full range of incomes and social classes within my neighborhood. Well, think about what happens if metropolitan areas like New York, San Francisco and the like turn into my suburb. You’ll have even less interaction. The most interesting and potentially foreboding implication of this sorting is that it changes the way we view life.”

Copyright 2006The New York Times Company

July 24th, 2006, 10:02 PM
I.R.S. to Cut Tax Auditors

a “back-door way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax.”

NY TIMES (http://www.nytimes.com/2006/07/23/business/23tax.html?ex=1153886400&en=0e5f7a1ec55fc8b1&ei=5087%0A)
July 23, 2006

The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.

The Bush administration has passed measures that reduce the number of Americans who are subject to the estate tax — which opponents refer to as the “death tax” — but has failed in its efforts to eliminate the tax entirely.

Mr. Brown said in a telephone interview Friday that he had ordered the staff cuts because far fewer people were obliged to pay estate taxes under President Bush’s legislation.

But six I.R.S. estate tax lawyers whose jobs are likely to be eliminated said in interviews that the cuts were just the latest moves behind the scenes at the I.R.S. to shield people with political connections and complex tax-avoidance devices from thorough audits.

Sharyn Phillips, a veteran I.R.S. estate tax lawyer in Manhattan, called the cuts a “back-door way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax.”

Mr. Brown dismissed as preposterous any suggestion that the I.R.S. was soft on rich tax cheats. He said that the money saved by eliminating the estate tax lawyers would be used to hire revenue agents to audit income tax returns, especially those from people making over $1 million.

Mr. Brown said that civil service rules barred the estate tax lawyers from moving over to audit income taxes. An I.R.S. spokesman said that the agency had asked for permission to allow such transfers twice, but that the Office of Personnel Management had not responded.

Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Mr. Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government.

Mr. Brown said that careful analysis showed that the I.R.S. was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said that auditing a greater percentage of gift and estate tax returns would not be worthwhile because “the next case is not a lucrative case” and likely to be of relatively little value.

That is a change from six years ago, when the I.R.S. said that 85 percent of large taxable gifts it audited shortchanged the government. The I.R.S. said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.

Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.

The six I.R.S. tax lawyers, some of whom were willing to be named, all said that clear evidence of fraud was pursued vigorously by the agency, but that when audits showed the use of complicated schemes to understate the value of assets, the I.R.S. had become increasingly reluctant to pursue cases.

The lawyers said that the risk analysis system the I.R.S. used to evaluate whether to pursue such cases gave higher-level officials cover to not pursue tax cheats and, in the process, emboldened the most aggressive tax advisers to prepare gift and estate tax returns that shortchanged the government.

“This is not a game the poor will win, but the rich will,” said John Hruska, another I.R.S. estate tax lawyer in New York who, like Ms. Phillips, is active in the National Treasury Employees Union, which represents I.R.S. workers.

Colleen M. Kelley, the national union president, said: “If these lawyers are not there to audit the gift and estate tax returns, then a lot of taxes that should be paid will go uncollected, and that impacts every taxpayer who is paying their fair share."

Copyright 2006The New York Times Company

July 24th, 2006, 10:50 PM
In New York, fewer than 13,000 of the 2.3 million households that pay income tax are expected to account for nearly 30 percent of city income tax paid in 2006.

wow, what is that like 5 square blocks of UES?

August 26th, 2006, 09:15 PM
One way the RICH get RICHER (and not just in the U.S.) ??

Whispers of Mergers Set Off Suspicious Trading

NY TIMES (http://www.nytimes.com/2006/08/27/business/27deals.html?ei=5065&en=5701a5f4e5b0ed15&ex=1157256000&partner=MYWAY&pagewanted=print)
August 27, 2006

The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem.

It is against the law to trade on inside information about an imminent merger, of course.

But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.

The study, conducted for The New York Times by Measuredmarkets Inc., an analytical research firm in Toronto, scrutinized mergers with a value of $1 billion or more that were announced in the 12-month period that ended in early July. The firm analyzed the price, the total number of shares traded and the number of individual trades in each stock during the weeks leading up to the announcement and looked for large deviations from trading patterns going back as far as four years.

Although any number of factors can lead to spikes in trading, deviations of the kind observed by Measuredmarkets are among the data used by regulators to spot insider trading. Of the 90 big mergers in the period, shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed.

Christopher K. Thomas, a former analyst and stockbroker who founded Measuredmarkets in 1997, said that his company’s analysis led to the conclusion that the aberrant activities most likely involved insider trading. Measuredmarkets provides examples of unusual trading to institutions, individuals and a regulatory organization in Canada.

It is always possible that a company’s stock moves because of developments in a particular industry or business sector, or because a prominent newsletter, columnist or blogger has written something that could prompt investors to take action. But in the companies that were analyzed, no such influences seemed to be at work. The companies were not the subject of widely dispersed merger commentary during the periods of abnormal trading, nor did they make any announcements that would seem to explain the moves.

The analysis by The New York Times found that, in a handful of the mergers, significant progress toward a deal was being made on the days unusual trading occurred. For example, the day that four bidders were putting together buyout offers for Amegy Bancorp, a Houston bank company, trading in its stock quadrupled.

Attempts to quantify the amount of potential insider activity in deals have come up short in the past, in part because the regulators with access to detailed information do not release it. The Securities and Exchange Commission does not disclose, for example, the percentage of referrals it receives from exchanges that wind up as cases.

The S.E.C. would not comment on the study but said that it had looked at Measuredmarkets’ system and concluded that surveillance techniques of self-regulatory organizations like the New York Stock Exchange were more sophisticated.

Securities regulators, traders and academics agree that merger waves lead to more illicit trading on nonpublic information. In Britain, regulators have made insider trading a primary focus and have shifted their scrutiny to brokerage firms and institutional investors, rather than individuals, involved in mergers.

Like Measuredmarkets, the Financial Services Authority in British has found a pattern of stock trading ahead of mergers. In 2004, 29 percent of companies involved in mergers experienced abnormal trading before public announcements, according to a March 2006 study of large British companies subject to takeovers. In 2001, the comparable figure was 21 percent.

The British study compared the stocks’ price movements with previous returns, adjusted for overall market moves. The comparison period was 240 trading days, ending 10 days before the merger announcement.

In this country, the S.E.C. has focused more on individuals than on institutions in its investigations. And even though merger activity has rocketed in recent years, the number of its cases involving insider trading has held in a range of 40 to 59 annually since 2000, the S.E.C. said.

Some economists and academics assert that insider trading is essentially a victimless crime and therefore not worth deploying regulatory armies to battle. But there are losers, including small investors who miss out on gains, when such trading moves markets.

Moreover, many investors are troubled by what they now see as rampant insider trading, saying it fosters the perception that insiders can profit in the markets at the expense of outsiders.

“Martha Stewart got hurt very badly for something that happens every single day on Wall Street,” said Herbert A. Denton, president of Providence Capital, a money manager and an adviser to minority shareholders. “It’s a falseness and a hollowness to the capitalist system when you are pretending that things are pristine and they are not. Either the S.E.C. should get very, very serious and prosecute a lot of people or forget about it.”

Although Ms. Stewart was investigated for insider trading, she was found guilty of other related charges.

The S.E.C.’s handling of one insider-trading investigation is the subject of scrutiny by Congress after the firing last September of Gary J. Aguirre, a former staff attorney at the agency. Mr. Aguirre contends that his investigation into possible insider trading by Pequot Capital Management, a prominent hedge fund, was thwarted for political reasons by his superiors. He was fired after complaining, even though he had just received a merit pay increase.

Mergers and acquisitions present particularly rich opportunities for profiting on insider information, a violation of the securities laws written to keep all investors on a level playing field. That is why all those involved in corporate unions, from law firms to investment banks to those in between like printers, are supposed to keep quiet during the process.

Officials from the nation’s top securities regulators met on Aug. 18 to discuss emerging trends in insider trading, said Joseph J. Cella, chief of the office of market surveillance at the S.E.C. “We are certainly cognizant of the uptick in merger-and-acquisition activity,” he said.

The companies identified by Measuredmarkets represented many industries and received bids not only from corporate rivals, but also from private investor groups and management-led buyout teams. They included Amegy Bancorp, the subject of a $1.7 billion takeover announced last September by Zions Bancorp, the large Utah bank; CarrAmerica Realty, a real estate investment trust acquired for $5.6 billion by the private investment company Blackstone Group after a March announcement; Dex Media, a directory publisher whose $9.5 billion purchase by the R. H. Donnelley Corporation was disclosed in October; the IDX Systems Corporation, a health care systems company whose $1.2 billion acquisition by General Electric was announced in September; and Texas Regional Bancshares, which the Argentinian bank BBVA said it would acquire in June for nearly $2.2 billion.

In each of the five cases, the abnormal trading occurred during periods of significant behind-the-scenes progress in the mergers, as outlined by the companies themselves in regulatory filings long after the deals were struck.

In the Amegy bank deal, the volume of shares traded more than quadrupled on a day when four of the bank’s bidders were analyzing its financial records and preparing offers. Volume jumped in CarrAmerica’s shares on Feb. 17, the day the real estate investment trust struck a confidentiality agreement with a potential bidder and Goldman Sachs began providing the bidder with an analysis of CarrAmerica’s books.

Trading in Dex Media increased sharply last Sept. 14, the day that management, legal teams and financial advisers representing the company and Donnelley met. And the price and the number of shares traded in IDX jumped on Sept. 7, when its chief executive and a G.E. executive talked and G.E. agreed to increase its bid by 5 percent.

Officials at the companies said that they were unaware of unusual trading in advance of the deals and declined to speculate on reasons for the action.

Measuredmarkets has no way to identify who might have been behind the anomalous trading. But a few of the deals that it flagged are already under scrutiny by regulators.

In June, for example, the S.E.C. froze $1 million in trading gains of South American investors who profited on the June 12 buyout announcement of the Maverick Tube Corporation, an oil equipment maker, by Tenaris SA, a steel company with headquarters in Luxembourg. Anadarko Petroleum’s June bid for the Kerr-McGee Corporation, a smaller rival, is also being investigated, according to a July 13 report in The Houston Chronicle; the transaction closed in August. The S.E.C., following its usual practice, declined to comment on the report.

The takeover crowd includes corporations, management-led buyout teams as well as private equity firms, which represent wealthy private investors.

Companies’ directors are reaching out to many potential bidders these days to ensure shareholders get the best price. In the process, they are expanding the number of people with knowledge of the deals.

Still, it is undeniable that brokerage firms, with their varied businesses all under one roof, remain particularly well-positioned to capitalize on inside information. Not only do these firms advise buyers and sellers in mergers, giving them immense access, they also have proprietary trading desks that invest the firm’s money in stocks and other securities, money management units that invest for clients and trading desks that profit mightily by executing trades for hedge funds.

Brokerage firms contend that barriers within their operations keep deal information from seeping out. But regulators at the Financial Services Authority in Britain are challenging these assertions.

In a July 7 speech, Hector Sants, managing director of wholesale and institutional markets at the F.S.A., described why his focus was shifting to institutions. “Our spotlight will shine in particular on relationships between investment banks and their clients,” he said, “because we believe the risk of market abuse is highest where a client can be made an insider on a forthcoming deal.”

The fast and furious pace of deals this year is increasing the opportunities for mischief. In each of the last three months, according to Thomson Financial, the value of announced mergers has exceeded $100 billion — the longest stretch of such volume since 2000.

Although the number of deals in the first seven months of this year slipped to 685 from 763 in the same period in 2005, the dollar amount of transactions rose 31 percent in that time, Thomson Financial said.

Regulators on the front lines also seem to be spotting more irregularities.

Officials in the market surveillance unit of New York Stock Exchange Regulation Inc. have made more referrals to the S.E.C. this year than they did in the comparable period last year. As of last month, those regulators had referred 76 cases for possible investigation, up from 60 a year earlier. In 2005, the surveillance unit referred 111 cases, 63 percent more than the previous year.

The number of insider-trading cases filed by the S.E.C., though, has been relatively static. Walter G. Ricciardi, deputy director of enforcement at the S.E.C., said that 9 percent of the cases filed by the commission since Feb. 1 have been based on insider trading, which can encompass merger or any other news that would affect a company’s market price. On a percentage basis, the cases have ranged from 7 percent to 12 percent of the agency’s total since 2000.

“The yield is less probably than in comparable areas,” Mr. Ricciardi explained of insider-trading inquiries. “A lot of times the trading may look like something crazy, but you’ve got to have evidence.”

Recent cases have centered on some relatively small players. In late December, for example, the S.E.C. sued Gary D. Herwitz, an accountant, and Tracey A. Stanyer, an executive vice president at Sirius Satellite Radio, for trading ahead of news in late 2004 that Sirius was going to award a $500 million contract to Howard Stern, a radio show host.

Each settled with the S.E.C., without admitting or denying wrongdoing (note: LOL). Mr. Herwitz paid $52,000. Mr. Stanyer paid $35,000 and was barred from serving as officer or director of a public company. Mr. Herwitz pleaded guilty to insider trading in federal court in Brooklyn and was sentenced to two years’ probation and a $20,000 fine earlier this year.

In May, the S.E.C. sued Jason Smith, a letter carrier in New Jersey, contending he leaked grand jury information to a 14-person ring that included low-level employees of Merrill Lynch and Goldman Sachs, a worker for a printing company and a retired seamstress in Croatia. Regulators say that scheme generated $6.7 million in profits.

What about cases involving larger or more sophisticated investors? “We certainly see institutional-type accounts that have come into the market with extraordinarily good timing on a repeat basis; we have investigated those,” said Mr. Cella of the S.E.C. “But to get the evidence to prove a violation of the statute under which we allege insider trading is difficult.”

And that is true whether the case involves individuals or institutions.

The British securities regulator, for its part, has cited the possibility of hedge funds profiting on insider information as a foremost concern. David Cliffe, a press officer at the F.S.A., said that hedge funds must be keenly watched because they have extensive and close relationships with investment banks that are in a position to provide nonpublic information in exchange for lucrative trading commissions.

Spotting abnormal trading is far simpler than bringing a successful insider-trading prosecution, as Mr. Cella of the S.E.C. noted. Still, the trading anomalies identified by Measuredmarkets are intriguing.

Consider Koch Industries’ bid for Georgia-Pacific on Nov. 13. Senior officials of the companies first met to discuss a merger on Oct. 5. Koch Industries proposed to limit its purchase to certain Georgia-Pacific assets after the company, which makes forest products, had spun off other businesses to the public. Subsequent company filings noted that Danny W. Huff, Georgia-Pacific’s chief financial officer, told Koch officials on Oct. 7 that such a deal would “probably not” be acceptable to his company’s board.

Merger talks continued through October and into November. Both sides conducted corporate analyses — known as due diligence — from Nov. 8-11. Koch Industries’ board voted to approve a bid on Nov. 10.

That day, volume in Georgia-Pacific shares jumped 37 percent above its 2005 average and the number of trades in the stock rose significantly as well, Measuredmarkets found. On Friday, Nov. 11, volume increased yet 66 percent more from the previous day’s high level. Georgia-Pacific shares rose 5.5 percent over the period. The company made no announcements either day, and the overall market rose 1.3 percent over the two days.

On Sunday, Nov. 13, Koch Industries announced that it would pay $21 billion for Georgia-Pacific, or $48 a share, a 39 percent premium to the closing price the previous Friday. Anyone who bought Georgia-Pacific shares on either Nov. 10 or Nov. 11 stood to gain 40 percent in just a few days.

A spokeswoman for Koch Industries did not return phone calls seeking comment.

Another case in point is the surprise merger, announced May 7, between the Wachovia Corporation, a bank holding company based in North Carolina, and Golden West Financial, a West Coast savings and loan. This time the unusual trading showed up both in the stock of Golden West Financial and in its call options.

Traders buy call options, giving them the right to purchase shares of the underlying company at a set price within a specified period, when they expect the stock to rise. Options provide the potential for a sharp profit because each option represents 100 shares.

On May 3, the number of Golden West’s call options that changed hands was triple the daily average. Subsequent filings show that was the day Wachovia’s board met to review a possible acquisition of Golden West and the day after Golden West’s board met to weigh the bid.

Officials at Wachovia and Golden West said they did not know why the volume rose.

The probability of detection appears small, based on the number of cases brought in the United States, and the penalty for insider trading is often a negotiated settlement that may not involve much more than giving up the gains.

An example is the S.E.C.’s conclusion of a case in 2004 with an employee of Fleet Boston. The employee, the S.E.C. said, made $473,000 by trading on knowledge of the bank’s buyout by Bank of America. The commission exacted $525,000 in a settlement, which included his profits, prejudgment interest of $1,576.67 and a civil penalty of $51,842.36.

The penalty portion of such settlements, Mr. Ricciardi said, typically equals the illegal profits. The Insider Trading Sanctions Act of 1984 allows for a penalty of up to three times those profits.

The S.E.C. dispenses a reward, up to 10 percent of the penalties, Mr. Ricciardi said, to tipsters whose information leads to a successful case.

When stocks gyrate because nonpublic information about deals has leaked out, many people are harmed. The most affected are those who sell shares in the company before it is taken over at a significant premium. An investor who sold Georgia-Pacific shares on Nov. 9, just before the unusual trading, missed a 46 percent gain. Those who sold the Andrx Corporation, just before unusual trading began last February missed, a 36 percent gain.

Others also lose. The company that makes the acquisition, for example, may wind up paying more. Investment advisers typically include a company’s target share price and total market capitalization in the analysis of what an acquirer should be willing to pay. If a stock rises in the days or weeks during negotiations, the purchase price could be driven higher. A rising price could even scuttle a merger if the deal becomes too costly to the prospective buyer.

Jenny Anderson contributed reporting for this article, and Donna Anderson contributed research.

Copyright 2006 The New York Times Company

August 27th, 2006, 09:42 AM
Imo, it's disingenuous to separate insider trading from shrewd speculation. Should we expect folks who get valuable info to not act on it? "Oh no, my husband told me about the impending disaster. I can't ethically sell my stock now; I'll just have to do the right thing, hang on to my stock and take a big hit." Yeah, right.

Fact is, insider or not, stock trading is the rot at the core of capitalism.

And since it's the very foundation, there's no fix.

August 27th, 2006, 12:18 PM
The question really is: what qualifies as insider trading?

It is simply impossible to publically annouce every event taking place at a company and there is really a lot of info that people don't know about. It's not about this stuff being unannouced but rather that nobody asks.

As someone who has been trading stocks and commodities his whole adult life I can tell you that getting news from something like Dow Jones or PR Newswire is about 3 weeks too late. Listen to a conference call, especially for smaller companies, and you will always get that one guy who asks ridiculously detailed questions like how many secretaries does each officer have.

To give you a very simple example, I made a lot of money buying Fluor Corp around the time of WTC contracts being annouced. Called the co, asked them what their chances are and they told me that this and that subsidiary has this and that many people vying for that contract. This info wasn't annouced but it was open to inquiry.

Insider trading is only when management gets together and actually says "we're not gonna pass that stage 3 FDA trial so let's tell everyone we will and dump our stock."

It's not very often that annoucements come as a surprise to the co. Scientists have an idea of how strong the product is and accountants crunch these numbers months before that quarter's results. Besides, often the stock price appreciates without any news so officers sell because they know it's a bs rise.

Now it may be unethical for employees to give out this info but if we're talking about Exxon, that's 80,000 employees who are probably more in-the-know than any stock trader.

August 27th, 2006, 03:20 PM
It still comes down to the insider getting the good tips & the deal ...

If an investor can't afford an inside guy then they'll always be at a disadvantage.

Scales tipped towards the "haves" (so what else is new :confused: :cool: )

September 4th, 2006, 01:52 PM
Pockets Half Empty, or Half Full

David Plunkert

NY TIMES (http://www.nytimes.com/2006/09/03/weekinreview/03leonhardt.html?ref=weekinreview)


September 3, 2006

Adding It Up

JUST in time for Labor Day, the Census Bureau seemed to indicate that labor itself was no longer such a good way to get ahead.

Incomes rose last year, thanks largely to higher Social Security payments and investment returns, the bureau said last week. But median earnings failed to keep pace with inflation for a second straight year. Even as the economy has continued to grow recently, some workers have accepted outright pay cuts, men have dropped out of the labor force, and debt has kept rising relative to income.

Yet by any measure, this remains a fabulously prosperous country. Three and a half million foreigners have applied for residency, employment authorizations or other immigration benefits in the eight months ended in May, a fair indication of the economy’s continuing dynamism. Medical advances have kept many elderly people healthy and, whether by choice or need, working.
Women have made gains in income. By wide margins, people say they live better than their parents.

To give some clarity to the blur of economic numbers released each month, five New York Times reporters each set out to find one statistic, often overlooked, that said something important about the economic health of the American worker. The results are below.

What seems clear from the recent data is that the United States has fallen into a new period of wage stagnation — a sequel to another such period lasting from the mid-1970’s until the mid-1990’s — that has begun to darken the public mood. In a New York Times/CBS News poll done last month, more than two-thirds of respondents said they thought that “things have pretty seriously gotten off on the wrong track” in this country. People’s expectations for the economy over the coming year are as downbeat as they were in the pessimistic days of 1982 or 1992, according to the University of Michigan’s consumer surveys.

This could all change fairly quickly if the economy begins delivering solid pay gains, much as optimism swelled in the mid-90’s just when wages seemed as if they might trail inflation forever. A fall in energy prices could also produce the equivalent of a pay increase. But if this doesn’t happen, it is unclear what will.

There is little indication that policy makers of either political party are close to a solution to the pay slump — or even an attempt at one. In Jackson Hole, Wyo., nine days ago, Ben S. Bernanke, the Federal Reserve chairman, gave a speech arguing that freer trade and new technologies had greatly lifted living standards over the course of history. But further progress “should not be taken for granted,” he added, in large part because unequal gains were creating political opposition to the economic changes.

Yet strikingly, in an address that spanned Martin Luther, the telegraph and Malaysian microchip laboratories, Mr. Bernanke did not suggest a single possible solution. These are not simple problems.

For all their anxiety, many workers aren’t sure what should be done, either. Douglas E. Schoen, a Democratic pollster, conducted a survey this summer in which he found deep concerns over a “crisis of affordability” that includes health care, retirement, education and gasoline. Yet Mr. Schoen said he found little appetite for policies that would redistribute income as his party has advocated over the years.

“Even after six years of Republican rule,” he wrote in his summary, “there is no sense whatsoever that the country should in any way move to the left.” Instead, he said, people were looking for pro-growth policies that were neither traditionally Democratic nor Republican.

Mr. Schoen usually works with centrist Democrats, including the Clintons, and liberals would surely argue that economic populism, packaged right, could be a winning strategy. Republicans, meanwhile, have said that Democrats are exaggerating the public’s unhappiness and that there is no pay problem. President Bush and his allies have frequently, and accurately, pointed out that average incomes are rising at a nice clip.

But averages can be affected by big changes among a small group of people, which is exactly what seems to be happening with incomes, according to an array of government data. The census report, for instance, showed strong income growth last year only at the 95th percentile of the distribution, which covers families making $166,000 a year. Even at the 90th percentile, as well as the 50th and further down, according to the Labor Department, pay increases have trailed inflation over the last three years.

It’s possible that Americans will simply decide that their current living standards are good enough, that further progress is not essential. But that would be a first.


Here, Take Back Some of My Pay, It’s Too Much


David Plunkert


A number is missing. No one knows how many American workers have agreed to accept, however reluctantly, a cut in their wages or benefits or both in recent years.

The government tracks unemployment, job creation, layoffs, hours worked, average hourly pay and various other aspects of employment. But it doesn’t add up the number of people who have forfeited big chunks of their pay and benefits, and neither do unions or academic researchers.

That was true of layoffs until the early 1980’s, when the Rust Belt experience, and the devastating loss of blue-collar factory jobs, became a political issue. Congress, in response, asked the Bureau of Labor Statistics (http://topics.nytimes.com/top/reference/timestopics/organizations/b/bureau_of_labor_statistics/index.html?inline=nyt-org) to count the layoffs in national surveys. The tally: at least 30 million full-time workers have been laid off over more than two decades.

Keeping a job, but losing 15 or 20 percent of a salary and most of a pension, is a painful experience — and certainly not good for consumer spending. Still, there has not been enough political pressure for an accurate count of those affected. That is partly because many workers and unions have agreed to the concessions to preserve jobs.

Is there a ballpark number? Piecing together union data shows that it is probably above two million people in this decade alone. But no one knows.
The concessions, for example, are particularly noticeable now among pilots and flight attendants at troubled airlines. Unions representing these workers, however, do not keep a running tally, and the same is true for workers at tire factories, supermarkets and auto parts plants, to name just three areas going through the experience.

“None of our earnings surveys show these concessions,” said Thomas L. Nardone, an assistant commissioner at the Bureau of Labor Statistics. “We just don’t track that number.”


The Flush Are Working for the Public

David Plunkert

September 3, 2006

FOR years it has been a workplace truism: jobs with fat paychecks are found in the private sector, while jobs with ho-hum pay but rock-solid benefits are found with the government. But research by the Employee Benefit Research Institute suggests that the truism has not been true for some time.

As of June 2005, overall compensation costs were 46 percent higher for state and local governments than for private-sector employers, according to the institute’s research analyst, Ken McDonnell.

And when Mr. McDonnell separated the cost of providing current pay from the cost of providing benefits, he found that government employees were doing better on both counts. An hour’s worth of their work cost governments $24.17 in wages and salaries, plus $11.29 in benefits. An hour’s worth of work in the private sector cost employers $17.21 for wages and salaries, plus $7.03 for benefits.

The $11.22-per-hour compensation gap reflects big differences in the composition of America’s work force. Roughly half of all state and local workers are employed in education — teachers, university professors and others who tend to be well educated and to belong to unions. The cost of compensating workers in that group was $37.99 per hour, Mr. McDonnell found.

By contrast, the biggest block of jobs in the private sector is in services — a mixed bag that includes both lawyers and hotel chambermaids, few of them in unions. Even at the high end, $27.93 per hour, this group’s total compensation cost fell short of what the educators could command. At the low end, it was just $10.84 an hour. (Of course, the services group includes about 47 million people and so the relatively few mega-earners don’t do much to raise the average.)

“It comes down to an issue of who is expendable,” said Mr. McDonnell, who drew on data from the Bureau of Labor Statistics and the Census Bureau.

“The greater the skill set,” he said, “the more essential the individual becomes.”


She Works, Her Grandson Doesn’t



OVER the course of a generation — 20 years — the American labor force has changed substantially. Workers are less likely to have dropped out of high school and more likely to be college graduates. They are less likely to work for companies that make things, and more likely to work for companies that provide services. Women are more likely to be in the labor force than they were 20 years ago, but men in the prime working ages of 20 to 54 are less likely to have jobs.

But perhaps the most notable trend is that men and women are both much more likely to keep working than were their parents in what used to be known as the golden years.

What happened? The economy is better than it was then, with a significantly lower unemployment rate of 4.7 percent, compared with 7.1 percent two decades ago. (All the figures are six-month averages, to reduce the volatility in the monthly numbers.)

The unemployment rate describes the percentage of people who want jobs who don’t have them. But another way to look at the numbers is to study the percentage of the entire population who have jobs.

Those statistics show that women have flooded into the labor force in every age group. And they show that this generation of the elderly is less likely to retire than the last one. The proportion of women ages 65 to 69 holding jobs has increased by 8.8 percentage points over the 20 years.

Is that because they love their jobs, or because they need the money? Yes.


Borrowers We Be

David Plunkert


WITH their raises often lower than the inflation rate, millions of Americans have embraced the same strategy to maintain their living standards — borrowing and then borrowing some more.

As a result, debt payments now consume 19.4 percent of the income of the average American family, and 23 percent of the families in the bottom two-fifths of families by income devote at least 40 percent of their income to debt payments. With debt burdens so high, some economists fear a new wave of foreclosure and personal bankruptcies now that interest rates have climbed.

“Real median incomes have gone nowhere, and for lower-income households real incomes have been falling,” said Mark M. Zandi, chief economist at Moody’s Economy.com. “If they want to maintain a certain level of spending, they have to take on more debt.”

Household debt rose to 132 percent of disposable income last year, partly because many Americans have pushed their credit card debt to the max and because many, including many high-income Americans, have piled on the mortgage debt. Last year, for the first time since the Depression, the personal savings rate for the nation fell below zero, meaning that Americans are spending more than they are earning (and are saving no money on a net basis).

“There are really two types of households out there,” Mr. Zandi said. “High-income households have balance sheets about as good as I’ve ever seen, while lower-income households have balance sheets about as bad as I’ve ever seen them — complete tatters. These households are on the financial edge, and if there’s any slight disruption, like a car breaking down, it can be a real disaster for them financially.”


For Those on the Outside, the Urge to Be Here Remains

David Plunkert


TO many beyond its borders, America remains the land of opportunity.

From October through May, the United States Citizenship and Immigration Services received 3.5 million applications from foreigners for employment authorizations, green cards and other immigrant benefits relating to residency or citizenship. Though down 9 percent from the same period a year ago in a further decline from the levels in 2001, before immigration rules were tightened, that is one application for every 100 Americans.

Whatever you may think about the state of the American labor market or the impact of immigrants on it, there is no denying that the right to work and live in the United States remains highly coveted.

Of those seeking entry, two groups dominate the numbers: low-skilled workers from Mexico and other Latin American countries and highly skilled professionals from India and China, said Richard B. Freeman, an economics professor at Harvard.

For the first group, the American labor market offers a higher standard of living and many more job opportunities. Life is certainly difficult for the first ones across the border, but their children have a far better shot at the American dream.

The second group, most of whom have at least a college degree, have different reasons for coming. They could get jobs in fast-growing economies back home, but they earn far more here and get to live in a fully developed, modern society.

“We can complain about our labor market because we are born in the U.S.,” said Mr. Freeman, who is also director of labor studies programs at the National Bureau of Economic Research. “But if you come from India or Mexico, you have totally different initial expectations.

“I just can’t imagine when we will not be attractive to immigrants,” he continued. “We would really have to screw our country up and they would have to run their countries very well.”


Copyright 2006 The New York Times Company

October 7th, 2006, 09:04 AM
Kicked While Down

NY TIMES (http://www.nytimes.com/2006/10/07/opinion/07sat2.html?_r=1&oref=slogin)
October 7, 2006


In a blow to labor unions, the National Labor Relations Board recently expanded the pool of workers exempted from union membership. Specifically, the labor board found that registered nurses who assigned others to some shifts or tasks were supervisors, and thus not eligible to join unions. It was a bad decision, not only because of the specifics of the case, but also in its broader ramifications.

There are good reasons to bar managers from unionizing. It is extremely difficult to run a large organization efficiently if the people at the top are unable to easily hold their managers accountable for overall success or failure. But responsibilities like making out a schedule do not amount to management. If they did, interns would be the only non- managers in many of today’s workplaces.

Companies facing unionization drives have long found it convenient to discover that employees who are basically rank-and-file workers are actually managers. That seems to be the case with the nurses. The board’s decision opens the door for possibly millions of health-care workers and other professionals to be disqualified from the option of union protection.

This is one more step curbing the power of organized labor since President Bush came to office. The administration’s philosophical vendetta against unions has come at a time when their power is already on the wane. Membership has fallen to 7.8 percent of the private work force in this country, from over a third in the 1950’s. Far from balancing the scales, the anti-union drive comes when workers are already at a historic low in bargaining strength. Despite a growing economy and rising productivity, hourly wages adjusted for inflation have declined 2 percent since 2003.

Corporate profits, meanwhile, are at their highest share of gross domestic product since the 1960’s.

We are getting closer and closer to a work force with no benefits and no substantive protections. Some unions succumbed to corruption and contributed to their own decline. But their role in giving common workers a voice is essential to a functioning society.

Copyright 2006 The New York Times Company

September 24th, 2007, 11:13 AM
He is trying an age old tactic. The common enemy.

He has ben spending more than any other president, but now, 2 years before he is leaving, he turns a "new leaf" that he claims is the same as the old, and tries to reign in the spending he now blames the Democrats for.

BOTH BRANCHES OF GOVERNMENT ARE RESPONSIBLE FOR THIS! Blaming one without taking due responsibility is a lame-arsed tactic that should not be accepted in this day and age.

But yet, if he does it right, he will have pople believing that he was only fighting for the "common man" (although his initial tax cuts gave more to corporate interest than the common man. I still want to give back my, what was it, $300?, to close this spending gap.

So long as that $$ does not go directly into military contracts or farm subsidies for profit crops like tobacco.

October 4th, 2007, 12:56 PM
Qatar & Vietnam ditch the dollar

Announcements on Thursday from the Qatari and Vietnamese governments that they are rapidly divesting in dollar denominated securities will not come as good news to the US government. Overseas investors hold half of America’s $4,400bn of marketable government debt, up from a third in 2001 according to the US Treasury department.

Qatari Prime Minister, Sheikh Hamad bin Jassim bin Jabr al-Thani said on US TV that the government-backed $50bn Qatari Investment Authority (QIA) now had less than 40 per cent of its investments in dollars, down from a high two years ago of 99 per cent.

Given that the Emirate’s oil and gas revenue is in dollars, the latest troubles in the US economy have accelerated the need to diversify investments into non-dollar markets. Currencies such as the Euro, the British Pound and the Swiss Frank, are all looking far more stable as investments for the QIA, said Sheikh Hamad. Such was the Qatari PM’s concern about the sliding dollar, that he even said an oil price of $125 per barrel would not be unreasonable.

On Thursday, the State Bank of Vietnam quietly let slip it would be ending its dollar purchase schemes, which it has been using to hold down the Vietnamese currency. Although it only has middling dollar reserves of $40bn, Vietnam is widely regarded as a barometer for economic sentiment among other, bigger, regional dollar sinks like China, Taiwan, Korea or Singapore. Hans Redeker, currency chief at BNP Paribas, told the Telegraph:

http://ftalphaville.ft.com/blog/2007/10/04/7831/qatar-v... /

October 4th, 2007, 02:35 PM
.... all gives the Saudi's even more leverage!

October 4th, 2007, 03:53 PM
... who are buying up dollar priced business assets at an alarming rate.

This is not to say that other foreign investors are not taking advantage of the fire-sale happening now in the US.

Mind you, this is a New England chart.


Foreign buyouts raise US fears as weaker dollar drives deals
Weakened dollar has investors pouncing


http://www.boston.com/business/globe/articles/2007/10/01/foreign_buyouts_raise_us_fears_as_weaker_dollar_dr ives_deals/]By Robert Weisman, Globe Staff | October 1, 2007

Foreign firms are taking advantage of the weaker dollar to buy US companies at a record pace that is boosting investment here but also raising fears about a potential loss of jobs and autonomy.

In New England alone, 69 companies have been sold to foreign buyers in the first nine months of 2007 for a total of $30.8 billion, more than in any full year since 2000, the height of the high-tech boom, according to New York research firm Thomson Financial.

"We could be looking at the world's largest tag sale if we continue to see declines in the dollar," said Donald Klepper-Smith, chief economist for the New Haven firm DataCore Partners.

Last month, Koninklijke Philips Electronics of the Netherlands snapped up Color Kinetics Inc., a Burlington maker of lighting systems, for $714 million. Analog Devices Inc. of Norwood agreed to sell a pair of cellular product lines to Taiwan's MediaTek Inc. for $350 million earlier this month. Just this week, Australia's United Group Ltd. completed a $411 million purchase of UNICCO Service Co., a Newton company that provides cleaning services for office buildings.

When Governor Deval Patrick and a delegation of state and local dignitaries went to Lenox on Sept. 4, they used the traditional Arabic salutation of "Peace be with you" to greet the new owners of one of Berkshire County's leading companies: Saudi Basic Industries Corp., known as Sabic, paid $11.6 billion for GE Plastics of Pittsfield, the biggest overseas acquisition of a regional company in 2007.

The buyouts are sparking anxiety from New England to Washington, though their impact is complex. Foreign owners typically use acquisitions as an entry into the US market and thus may be more willing than American buyers to invest in their new holdings, some economists say. But the risk is that they might also be quicker to cut back or consolidate US operations when times get tough.

"Quite naturally, foreign companies want to play in this market," said Alan Tonelson, research fellow at the US Business and Industry Council, a trade group for small and mid-sized manufacturers. "They want leading-edge technology, and the United States is still the technology leader. But when they buy these companies, they're acquiring control over the most dynamic pieces of the American economy, and they're acquiring control over America's future."

Overseas buyouts are just one way the dollar's falling value against foreign currencies is having an impact on New England. The weaker dollar has also drawn European, Asian, and Canadian tourists to Cape Cod and Maine, made it more expensive for Americans to travel abroad, and boosted the exports of regional companies that sell high-tech equipment or medical gear around the world.

But foreign acquisitions could become the sagging dollar's most lasting legacy. Nationally, the value of this year's purchases of companies by non-US buyers totaled $257.4 billion as of this week - also a seven-year-high. The figure represents more than 20 percent of the value of all US acquisitions in 2007 through this week.

Some see the takeovers, which have been on the rise in New England for five years, as inevitable in a global economy where geographic borders matter less than the strengths and weaknesses of increasingly multinational companies. Chrysler was acquired by German automaker Daimler Benz in 1998 but resold to US private equity firm Cerberus Capital Management this year. And many of the top multinationals, such as New England's General Electric Co. and United Technolgies Corp., have headquarters in the United States.

"It's part of the overall global economic climate," said Brian Bethune, a US economist for Waltham research firm Global Insight, who said the acquisitions should be judged case by case. "Foreign companies are trying to get access to the US market, and generally that's positive. European and Asian companies tend to take a longer view, and could be more patient investors than US hedge funds."

For now, many of the overseas buyers are promising to invest in their acquired properties. The new management team at Sabic Innovative Plastics, the former GE Plastics, plans to add 75 to 100 employees to its 425-person workforce. "We're really lucky it wasn't bought by a Dow or a Dupont, because they might have moved the work from here to another one of their US facilities," said Alfred Shogry, president of the Berkshire Central Labor Council in Pittsfield.

Color Kinetics, the Dutch acquisition newly renamed Phillips Solid State Lighting Solutions, is also beefing up its 160-person workforce at offices off the Route 128 beltway in Burlington.

"Phillips is looking at us to be their global research and development center for LED-based lighting fixtures," said company spokeswoman Felicia Spagnoli, referring to the company's patented light-emitting diode technology. "We're absolutely hiring and growing right now. We have been more successful in North America than they were in LEDs, and now they want to take what we have and grow it."

But that's not always the case with foreign takeovers. French telecom equipment maker Alcatel, which bought American rival Lucent Technologies last year, said this month it will cut thousands of jobs. And outsourcing provider Caritor Inc., which has corporate offices in California but almost all its employees and operations in India, recently notified Massachusetts officials that it plans to eliminate more than a quarter of the 350 jobs at the Charlestown headquarters of technology services firm Keane Inc., which it purchased in June.

While overseas companies have been buying US businesses for years, a new element in the current acquisition wave is foreign governments, like China, Dubai, and the United Arab Emirates, investing directly in US assets. Borse Dubai, a holding company linked to Dubai's financial markets, last week unveiled a proposed deal under which it would buy 20 percent of the Nasdaq stock exchange.

Klepper-Smith said such deals may benefit investors on Wall Street. But he fears their impact on Main Street will be less benign if decisions on jobs and plant locations are made across the world in Europe, Asia, or the Middle East. "It raises some red flags and some real questions about our independence," he said.

Robert Weisman can be reached

at weisman@globe.com.

October 4th, 2007, 04:05 PM

Print and drop @ home, or at work. Print and drop to exacerbate politically neutral wealth reallocation. Now you too can steal from those who save, and give to those who borrow.

October 4th, 2007, 04:59 PM
The US, and the dollar, is going down the toilet. I don't see it turning around anytime soon.
Just my daily dose of optimism:rolleyes:

October 5th, 2007, 05:37 PM
The dollar is doing down because the gov't is giving out candy before the election. After the election they'll raise interest rates to fight inflation and strengthen the dollar. But that will cause pain, so it won't happen now.

BTW, a weak dollar isn't the worst thing. It makes our exports cheaper, and draw investment and tourism. What do you think is propping up the NYC real estate market. Those megabux condos are chump change to foreigners (well rich foreigners).

October 5th, 2007, 07:43 PM
The dollar is doing down because the gov't is giving out candy before the election. After the election they'll raise interest rates to fight inflation and strengthen the dollar. But that will cause pain, so it won't happen now.

That the federal reserve can hold the president, -present or future, hostage to inflation and a recessionary economy is criminal.

And as a note; the dollar never gains value, it is always devalued. (Price) inflation is the rule, sometimes faster, sometimes slower, but always continuing. When you say "strengthen the dollar," I think you mean slow the dollar's demise.

October 31st, 2007, 12:36 PM
London financial dominance - we hardly knew ye... http://www.redherring.com/Home/23061

OK, maybe I'm exaggerating, but it would be a huge boost for the world economy.

By the way, why is the rest of this thread so detached from reality? The economy is doing respectably right now, it makes sense for countries to diversify their currency reserves, and the dollar will rise in 2009. Inflation is low and we have debt, so some fall in the dollar is reasonable in the short term given we're fighting 2 wars right now. In the long term, anyone who thinks the US economy won't dominate global growth deserves the losses they'll receive from an investment strategy based on that nonsense.

October 31st, 2007, 01:43 PM
anyone who thinks the US economy won't dominate global growth deserves the losses they'll receive from an investment strategy based on that nonsense.
Worth a look at, it might make you feel less complacent ....

October 31st, 2007, 02:00 PM
London financial dominance - we hardly knew ye... http://www.redherring.com/Home/23061London's dominance in international finance came from its adoption of the world as its marketplace, in contrast to New York which looked inwards to the US. An AIM rival will help US-based companies, but its not going to compete successfully on the international front, not with so many other 'issues' that are still unresolved; and there is no guarantee that prospects won't change if they did!

October 31st, 2007, 02:07 PM
Yeah, currency markets, etc, will remain in London. But I disagree that AIM wouldn't bring international listings back to the US, which dominated before Bush screwed up. A lot of companies also left the US because of Sarbanes Oxley and excessive regulation.

If there is an exchange where they can list, and we pass immigration legislation appropriate for skilled immigrants, I think the US markets will remain attractive to a lot of people overseas. India and Chinese people, in my subjective view, have warmer views of the United States than Europe. Not their militaries, but their people and business people. I was actually surprised by the specificness of Chinese fondness for American culture when I visited.

October 31st, 2007, 06:01 PM
India and Chinese people, in my subjective view, have warmer views of the United States than Europe. Not their militaries, but their people and business people. I was actually surprised by the specificness of Chinese fondness for American culture when I visited.

Off topic, but there is indeed something nice about traveling in Asia. I can't speak for China, but I was impressed with the affection shown towards Americans and the US throughout much of Asia. While I myself am happily counting down the days until the end of the current presidency, and hopefully a turnaround in US foreign relations, it is tiring to be constantly bombarded with criticism of US policy when traveling in Europe. I found that in Asia I was not subjected to such questioning.

November 1st, 2007, 08:43 AM
Yeah, currency markets, etc, will remain in London. But I disagree that AIM wouldn't bring international listings back to the US, which dominated before Bush screwed up. A lot of companies also left the US because of Sarbanes Oxley and excessive regulation.

If there is an exchange where they can list, and we pass immigration legislation appropriate for skilled immigrants, I think the US markets will remain attractive to a lot of people overseas. India and Chinese people, in my subjective view, have warmer views of the United States than Europe. Not their militaries, but their people and business people. I was actually surprised by the specificness of Chinese fondness for American culture when I visited.A slightly jaded view of international finance, because it goes far deeper than that.

For a start, the world isn't concentrated around the Atlantic, its shifting eastwards towards China, India, and Russia and London is perfectly placed to service the US, Europe and these growing territories at the same time...New York can't.

The general climate is also a lot more receptive for rich internationals; taxation, accessibility to home and other countries, and general acceptance within London. Can you imagine Russians or Arabs owning the New York Yankees?

New York still lacks an airport express service, while in two weeks, London will open phase II of the CTRL which will reduce journey times to Brussels to less than 2hrs and to Paris in just over. And then there is the Olympics.

Fondness doesn't equate to business.

November 1st, 2007, 11:16 AM
I think the broader reason London is doing better is they are winning the talent competition. I think intelligent people, generally, are scared to death by Bush, and many are choosing London as a result as a place to go. Furthermore, the US isn't doing a good job at letting intelligent people come here since 2001. Not surprisingly, capital is chasing talent to London.

But Bush is gone in a year. Many of the companies doing financial business in London are in fact US based, and I think the US remains the top choice for many talented people trying to leave India, China, Russia and even the middle east.

If we can fix our regulatory mess and stop doing things that annoy smart people or prohibit their entry, I think many will come back. London won't die, and England may punch above its weight in international finance and continue to grow, but the US is the world's dominant power and we'll eventually stop hemmorhaging these jobs when Bush leaves office and stops being a walking gaffe machine.

November 1st, 2007, 12:20 PM
I think the broader reason London is doing better is they are winning the talent competition. I think intelligent people, generally, are scared to death by Bush, and many are choosing London as a result as a place to go. Furthermore, the US isn't doing a good job at letting intelligent people come here since 2001. Not surprisingly, capital is chasing talent to London.

But Bush is gone in a year. Many of the companies doing financial business in London are in fact US based, and I think the US remains the top choice for many talented people trying to leave India, China, Russia and even the middle east.

If we can fix our regulatory mess and stop doing things that annoy smart people or prohibit their entry, I think many will come back. London won't die, and England may punch above its weight in international finance and continue to grow, but the US is the world's dominant power and we'll eventually stop hemmorhaging these jobs when Bush leaves office and stops being a walking gaffe machine.The broader reason is that London is more accepted by the international world, and London is more receptive and accommodating of those that respond. Like I mentioned, could you imagine the New York Yankees owned by a Russian or Arab (even if Bush never existed), when there are no such issues in London.

In two weeks time, an investment banker can finish work on a Tuesday evening, and arrive in Paris for dinner, spend the night there, and be back in London for work the day after.

Location, location, location - its playing a far bigger part than the world of 1997.

November 1st, 2007, 12:33 PM
Like I mentioned, could you imagine the New York Yankees owned by a Russian or Arab (even if Bush never existed), when there are no such issues in London.Don't bring up issues with New York and Arabs (or Muslims). New York hardly has any.

London, on the other hand...

November 1st, 2007, 12:37 PM
It's interesting that you bring up the Yankees. That deal would go through in the US after some symbolic populism which has more to do with sports entertainment than serious opposition to the deal. But what I think you're really talking about is the Dubai ports fiasco. Why didn't that deal go through - because our language challenged politician accused his domestic adversaries of being in league with terrorists, and they responded by opposing a deal that made him look hypocritical and embarassed him even though it was bad for the country and our desire to make friends overseas in that part of the world.

The poisoned relationship that caused the Dubai situation is the exact kind of thing that we can stop if Bush leaves office - it speaks to how Bush's presence alienated people and poisons the climate in the US. America will bounce back when he's gone in 2009.

November 1st, 2007, 12:45 PM
Zippy, that's not actually true. There are lots of Muslims in New York, and they are much wealthier on average than London's Muslim and Arab population. That's also true of Russians. What's lost on people is America is so diverse and inclusive that these people rapidly assimilate, are accepted, and become just like everyone else - this in turn, gives them a lower profile. Which is why New York could return to the top of the throne when the polarizing nature of the Bush administration is put in the past where it belongs a year from now.

November 1st, 2007, 01:38 PM
What did I say that's not actually true?

November 1st, 2007, 01:45 PM
What's lost on people is America is so diverse and inclusive that these people rapidly assimilate, are accepted, and become just like everyone else - this in turn, gives them a lower profile.
How come the inclusiveness, assimilation and acceptability works in the US but not in the UK?

November 1st, 2007, 09:10 PM
hi zippy - i twas your comment that New York doesn't have many Arabs. http://www.gothamgazette.com/commentary/107.history_arab.shtml. 600K Muslims, 200K of which are Arab. I couldn't get statistics for Christians Arabs or Christian Persians. And of course, many Arab neighborhoods exist in Jersey City and throughout the region. So, the thing is, there are lots of Arabs in NYC. Fewer than London perhaps, but the beauty of New York is its so diverse no group dominates, which I like.

capn, I actually have no idea why inclusiveness works better in the US and Canada than it does elsewhere in the world. But it is amazing how well it really does work. Just look at the Louisiana governor's race - someone from an unfamiliar culture can come, raise their children peacefully in a state with a stronger nativist streak than the rest of the US where the economy has been left behind by globalization, and that child can assimilate so well they elect him governor. (not that I agree with all of Jindal's views, especially on intelligent design, but that's also not why he was elected).

November 1st, 2007, 09:22 PM
I meant New York doesn't have many issues with Muslims as compared with London, refuting Nick's observation.

Nick has alternately explained this discrepancy by claiming the concentration of the Muslim population in America is high (so we can keep and eye on them), and low (not enough critical mass to detonate).

November 2nd, 2007, 06:36 AM
capn, I actually have no idea why inclusiveness works better in the US and Canada than it does elsewhere in the world. But it is amazing how well it really does work.
I agree it does work very well, but we don't seem able to do it in the UK.

November 5th, 2007, 11:42 PM
OK, I can take the decline in America influence and knowing our president an idiot. But, losing Gisele is a last straw!


Raise my interest rates 10%, just bring Gisele back.

November 7th, 2007, 12:43 AM
I don't really buy the argument that this stuff is bad for business, although the capital gains tax hikes would be detrimental. Flexible working hours allow children to get education and parental support, which ultimately raises productivity in society. It's a logical long term investment that the US should follow.


November 13th, 2007, 04:08 AM
Gisele is smart, the value of our dollar is an embarrassment. Republicans have ruined this country.

November 13th, 2007, 04:28 AM
I don't have any real problems with Gisele asking to be paid in euros for work she does in Europe. But I thought it was a funny metaphor for our inept deficit policies, which I agree are being caused by republican policies.

The tax cuts and low interest rate policies we implemented poured gasoline on the trade deficits of the 1990s and were not reasonably targeted to maximize domestic benefits. You can have tax cuts (like on college education and research/development) that are general but still primarily increase domestic spending without being protectionist. And of course, we should have spent money reducing our dependence on foreign oil, which I view as a more threatening part of our trade imbalance then our imbalance with Asia.

November 13th, 2007, 09:50 AM
MTG, the repubs did not ruin it, they just helped it on its way.

The people of this country ruined it.

People that are unwilling to spend an extra $1 on a kids toy, or $200 on a TV and have been buying all of our products overseas.

From ALL of the lawmakers enabling cheap outsourcing to other countries making even more technical jobs leave our country.

It is a classic selfish population problem. Everybody is willing to say "this is bad", but if it means going to a mom-and-pop over Wal-Mart, most people are not willing to spend that extra $5-$10 a week to keep it all in the neighborhood. :(

November 13th, 2007, 12:03 PM
Ninja, you're right that trade deficits were rising under Clinton, but there's a difference. In an economic boom, its healthy and self correcting to run a trade deficit. Our economy under Clinton was at full employment so we purchased stuff from abroad to keep inflation lower and to celebrate. But you'd expect the trade deficit to decline when the economy slowed down under Bush. I suspect that would in fact have happenned if we hadn't gone out of our way to give a tax cut in such a way as to encourage people to then spend the money. The thought was that consumption would sustain our economy - instead it sustained China's economy and hurt the dollar. A more logical program of dealing with unemployment - like college scholarships, health care reform, etc, would have ensured that we stimulated domestic demand and also reduced income inequality.

November 17th, 2007, 09:08 AM
The so-called "Bush tax cut," er...let's talk. For starters:

1. Was it really a tax cut? The U.S. Government has been awash in tax receipts these last four years. The U.S. government just happens to be spending its brains out.

2. Was it actually an offset to the increased tax receipts resulting from bracket creep vs. the Alternative Minimum Tax?

3. The "Bush tax cut" seemed perfectly timed for the economic downturn after 9/11. Haven't the Democrats already conceded that point? It's very Keynesian to pump prime an economy with tax cuts...isn't that exactly what was done?

4. Would a complete repeal of the "Bush tax cuts" actually bring in more revenue to the feds?

5. How much should "rich" people pay? And, what is your definition of "rich?"

November 21st, 2007, 01:21 AM
Bob, I agree with you tax cuts are a good stimulus for a recession. My problem with Bush's tax cuts is they didn't target domestic spending in anyway at all even though the trade imbalance was soaring. If we had a tax cut on education and individual paid health care, for example, that would have been stimulus with a much higher degree of likelihood of employing people domestically. Perhaps the most obvious tax cut + stimulus was missing was for capital projects to reduce oil demand. Like eliminating sales tax on cars with certain fuel mileage, etc. It just seems like Bush used a sledgehammer when what he needed was a nail, with the obvious consequence that it was a very inefficient way to do stimulus and it also mainly encourged consumers to buy foreign goods.

November 25th, 2007, 08:33 AM
MTG, the repubs did not ruin it, they just helped it on its way.

The people of this country ruined it.

People that are unwilling to spend an extra $1 on a kids toy, or $200 on a TV and have been buying all of our products overseas.

From ALL of the lawmakers enabling cheap outsourcing to other countries making even more technical jobs leave our country.

It is a classic selfish population problem. Everybody is willing to say "this is bad", but if it means going to a mom-and-pop over Wal-Mart, most people are not willing to spend that extra $5-$10 a week to keep it all in the neighborhood. :(
We've become a land of bargain hunters.

Americans were once known for spendthrift generosity.

November 25th, 2007, 02:04 PM
Yup, now all we aspire to are good prices on toxic, plastic Chinese crap.

November 25th, 2007, 02:41 PM
Americans were once known for spendthrift generosity.

We've moved so far from that ^

Seems along the road while acquiring all those MBAs something big fell off the truck :cool:

November 26th, 2007, 04:31 PM
Problem is this though.

We are no longer a nation of craftsmen.

We do not take pride in the manufacture of our items, but rather the make and the price.

Our buildings do not have masons anymore, but pre-fab walls of made-to-look-like brick or stone. We have few, if any, quality furnature makers that are not considered "luxury providers" and style their creations as such. (no solid table w/o "rustification").

When the wife and I went out furnature shopping, we found 3 basic types:

1. Cheap as hell. Doors that did not close right and veneers that could be peeled away with vigorous finger-rubbing.

2. "Quality". A BIT more solid, but still prone to veneers and other cost-saving devices rather than simple solid wood. VERY hard to find anything but the generic basics (Bed, nightstand, dresser, bureau, etc).

3. "Exotic". Places like Einstein Moomjy who charge $6000 for a simple sliding door bookshelf or $1000 for an end table.

They are missing the ones that look and feel like they were put together for a purpose. To last. But also with a second purpose, to give a sense of pride to the owner.

That class has been lost as people have split to the bargain hunters and the "look at me" spenders. Why is Ikea so popular? It surely isn't for its style (or lack thereof!). And we definitely do not have that many college students in the US to support their continued expansion.

Maybe it's their meatballs.

December 26th, 2007, 08:07 AM
How the balance has shifted ...

Age of Riches

NY TIMES (http://www.nytimes.com/2007/12/23/business/23wealth.html)
December 22, 2007



Copyright 2007 The New York Times Company

December 26th, 2007, 10:44 AM
The peaks look like the Tek bubble and the Real Estate surge.

Those that had enough to invest in either made a lot, but you also see how their incomes go down as the bubble crashes or surge ebbs.

Keep in mind that this is INCOME, and not net worth. These guys at the top may be earning less during a recession, but that does not mean they all lost something.

December 27th, 2007, 05:53 PM
It is getting harder and harder to purchase items not made in China. So much for free trade...when I go to the store, I have a choice of this item made in China, or that item made in China.

I simply will NOT buy anything made in China, so this means I've often refused to purchase and have done without.

December 27th, 2007, 06:20 PM

1. Cheap as hell. Doors that did not close right and veneers that could be peeled away with vigorous finger-rubbing.

2. "Quality". A BIT more solid, but still prone to veneers and other cost-saving devices rather than simple solid wood. VERY hard to find anything but the generic basics (Bed, nightstand, dresser, bureau, etc).

3. "Exotic". Places like Einstein Moomjy who charge $6000 for a simple sliding door bookshelf or $1000 for an end table.

NH, this is a very good breakdown and made me chuckle (then frown).
When you have to pay thousands of dollars for simple, quality wood furniture it's a shame. Basically the same breakdown can be applied to almost everything we buy.

And of course, to architecture.

I like to buy most of my housewares and clothing when I am out of the country, visiting societies where real craftsmanship is still available for a reasonable price. Almost everything in my apartment was bought while traveling, from curtains and blankets to plates. Now in America all you'd find is crap unless you are a millionaire. For example, there is that laughably ridiculous store "Bloom" down the street, where you pay hundreds of dollars for a carved wooden candlestick or a pillow. :rolleyes:
I guess it's either that or the flea markets for real quality now.

December 28th, 2007, 09:36 AM
Maybe we just need to train the kids in Wood Shop a bit better.

that is, if all the wood shop classes have not been shut down for fear of the kids learning a practical tra... I mean, hurting themselves and suing the city... :p

January 20th, 2008, 02:31 AM
January 20, 2008

Overseas Investors Buy U.S. Holdings at a Record Pace

By PETER S. GOODMAN (http://topics.nytimes.com/top/reference/timestopics/people/g/peter_s_goodman/index.html?inline=nyt-per) and LOUISE STORY (http://topics.nytimes.com/top/reference/timestopics/people/s/louise_story/index.html?inline=nyt-per)

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company established a new factory in Adrian, Mich., adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.

For much of the world, the United States is now on sale at discount prices.

With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson (http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=TOC) Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies — more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.

The surge of foreign money has injected fresh tension into a running debate about America’s place in the global economy. It has supplied state governors with a new development strategy — attracting foreign money. And it has reinvigorated sometimes jingoistic worries about foreigners securing control of America’s fortunes, a narrative last heard in the 1980s as Americans bought up Hondas and Rockefeller Center landed in Japanese hands.

With a growing share of investment coming from so-called sovereign wealth funds (http://topics.nytimes.com/top/reference/timestopics/subjects/s/sovereign_wealth_funds/index.html?inline=nyt-classifier) — vast pools of money controlled by governments from China to the Middle East — lawmakers and regulators are calling for greater scrutiny to ensure that foreign countries do not gain influence over the financial system or military-related technology. On the presidential campaign trail, the

Democratic candidates have begun to focus on these foreign funds, calling for international rules that would make them more transparent.

Debate is swirling in Washington about the best way to stimulate a flagging economy. Despite divided opinion about the merits, foreign investment may be preventing deeper troubles by infusing hard-luck companies with cash and keeping some in business.

The most conspicuous beneficiaries are Wall Street banks like Merrill Lynch (http://topics.nytimes.com/top/news/business/companies/merrill_lynch_and_company/index.html?inline=nyt-org), Citigroup (http://topics.nytimes.com/top/news/business/companies/citigroup_inc/index.html?inline=nyt-org) and Morgan Stanley (http://topics.nytimes.com/top/news/business/companies/morgan_stanley/index.html?inline=nyt-org), which have sold stakes to government-controlled funds in Asia and the Middle East to compensate for calamitous losses on mortgage markets. Beneath the headlines, a more profound shift is under way: Foreign entities last year captured stakes in American companies in businesses as diverse as real estate, steel-making, energy and baby food.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. With American banks reeling from the housing downturn and loath to lend, businesses are hungry for cash.

The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash.

As the German company ThyssenKrupp Stainless broke ground in November on what is to be a $3.7 billion stainless steel plant in Calvert, Ala., its executives spoke effusively about the low cost of production in the United States and the chance to reach many millions of customers — particularly because of the North American Free Trade Agreement, which allows goods to flow into Mexico and Canada free of duty.

“The Nafta stainless steel market has great potential, and we’re committed to significantly expanding our business in this growth region,” said the company’s chairman, Jürgen H. Fechter, according to a statement.

Foreign giants like Toyota Motor (http://topics.nytimes.com/top/news/business/companies/toyota_motor_corporation/index.html?inline=nyt-org) and Sony (http://topics.nytimes.com/top/news/business/companies/sony_corporation/index.html?inline=nyt-org) have been sinking capital into American plants. Investment in the American subsidiaries of foreign companies grew to $43.3 billion last year from $39.2 billion the previous year, according to the research and consulting firm OCO Monitor.

“This is a vote of confidence in the American economy, the American marketplace and the American worker,” the deputy Treasury secretary, Robert M. Kimmitt, said. (Oh brother:rolleyes:) “These investments keep Americans employed and keep balance sheets strong.”

Five million Americans now work for foreign companies set up in the United States, Mr. Kimmitt said, and those jobs pay 30 percent more than similar work at domestic companies. Nearly a third of such jobs are in manufacturing, which explains why Rust Belt states have been wooing foreign investment.

“We’ve lost 400,000 manufacturing jobs,” said Michigan’s governor, Jennifer M. Granholm (http://topics.nytimes.com/top/reference/timestopics/people/g/jennifer_m_granholm/index.html?inline=nyt-per), a Democrat, who has traveled three times to Europe and twice to Japan in pursuit of investment since taking office in 2003. “I’ve got to get jobs for our people.”

Some labor unions see the acceleration of foreign takeovers as the latest indignity wrought by globalization.

“It’s the culmination of a series of fool’s errands,” said Leo W. Gerard, international president of the United Steelworkers. “We’ve hollowed out our industrial base and run up this massive trade deficit, and now the countries that have built the deficits are coming back to buy up our assets. It’s like spitting in your face.”

Other labor groups take a more pragmatic view.

“We need investment and we need to create good jobs,” said Thea Lee, policy director for the A.F.L.-C.I.O. (http://topics.nytimes.com/top/reference/timestopics/organizations/a/american_federation_of_laborcongress_of_industrial _organizations/index.html?inline=nyt-org) in Washington. “We’re not in the position to be too choosy about where that investment comes from. But it does bring home the consequences of flawed trade policies over many, many years that we’re in this position of being dependent.”

At the center of concern is the growing influence of sovereign wealth funds, which invested $21.5 billion in American companies last year, according to Thomson. Analysts say they could skew markets by investing to improve the fortunes of their national companies or to pursue political goals.

“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism,” said Jeffrey E. Garten (http://topics.nytimes.com/top/reference/timestopics/people/g/jeffrey_e_garten/index.html?inline=nyt-per), a trade expert at the Yale School of Management. “The United States has not ever been on the receiving end of this before.”

Perhaps emblematic of national ambivalence, in an appearance on CNBC last week, the voluble market analyst Jim Cramer (http://topics.nytimes.com/top/reference/timestopics/people/c/james_j_cramer/index.html?inline=nyt-per) spoke in menacing terms about the growing role of state investment funds from the Middle East and China.
“Do we want the communists to own the banks, or the terrorists?” Mr. Cramer asked. “I’ll take any of it, I guess, because we’re so desperate.”

Proponents of investment from overseas note that finance from sovereign wealth funds is a mere trickle of the overall flow from abroad. Indeed, the bulk comes from Europe, Canada and Japan. Just as Americans have scattered investments around the world in pursuit of profit — with holdings of foreign stock and debt exceeding $6 trillion in 2006, according to the Treasury Department — foreigners are looking to the United States, with their capital generating economic activity, proponents say.

If fear of foreign money now inspires Americans to erect new barriers, that would damage the economy, said Todd M. Malan, president of the Organization for International Investment, a Washington lobbying group financed by foreign companies.

“The policy choices on the negative side would have enormous economic implications that would make the current situation look like a bubble bath,” he said.

Tensions spawned by foreign investment hark back to the 1980s, when Japan snapped up prominent American businesses like Columbia Pictures, and some intoned that the American way of life was under assault. The new wave of foreign money is washing in at an even more important time, analysts say.

The United States has lost more than three million manufacturing jobs since 2001, with foreign trade often taking the blame. Foreign-made goods now account for roughly one-third of all wares consumed in the United States, roughly tripling their share over the last quarter-century. The soaring price of oil and a widening trade deficit underscore how the American economy is increasingly vulnerable to decisions made far away.

In 2005, Congressional opposition scuttled a bid by the state-owned Chinese energy company Cnooc to buy the American oil company Unocal. The following year, furor on Capitol Hill prevented DP World, a company based in the United Arab Emirates, from buying several major American ports.

No such outcry has greeted the purchase of stakes in major Wall Street banks by state investment funds in the United Arab Emirates, Kuwait, China, Singapore and South Korea. This is largely because the banks sold passive slices and ceded no formal control, which would have set off a federal review of the national security implications. But the silence also reflects the imperative that these enormous institutions swiftly secure cash.

“It would be good if these companies didn’t need all this capital and better if the capital was available in the United States,” said Senator Charles E. Schumer (http://topics.nytimes.com/top/reference/timestopics/people/s/charles_e_schumer/index.html?inline=nyt-per), Democrat of New York, who was a vocal opponent of the DP World deal. “But given the situation that these institutions find themselves in and the fact that there’s a pretty strong credit squeeze, there’s only two choices: Have foreign companies invest in these firms or have massive layoffs.” (But keep funding the Iraq war:mad:)

In years past, particularly when Japanese money washed in, many foreign purchases proved not to be so prudent in the end. This time, with the dollar weak and troubled American companies in a poor bargaining position, the prices really do seem cheap, some economists say.

“They’re buying financial assets at well under book value,” said Gary C. Hufbauer, a trade expert at the Peterson Institute for International Economics.

Trade experts assume tensions will rise as developing countries — which tend to have more state companies — continue to expand their share of investment in the United States.

Canada still spends the most money buying stakes in American companies — more than $65 billion in 2007, according to Thomson. But other countries’ purchases are growing rapidly. South Korea’s investments swelled to more than $10.4 billion last year from just $5.4 million in 2000. Russia went to $572 million from $60 million in that span; India to $3.3 billion from $364 million.

But even if political tension increases, so will the flow of foreign money, some analysts say, for the simple reason that businesses need it.

“The forces sucking in this capital are much bigger than the political forces,” said Mr. Garten, the Yale trade expert. “If there is a big controversy, it will be between Washington on the one hand and corporate America on the other. In that contest, the financiers and the businessmen are going to win, as they always do.”

Copyright 2008 (http://www.nytimes.com/ref/membercenter/help/copyright.html) The New York Times Company (http://www.nytco.com/)

January 23rd, 2008, 08:54 PM
America's recession will be hard to shift

By Wolfgang Münchau

Published: January 21 2008 02:00 | Last updated: January 21 2008 02:00

Monetary policy affects the economy with long and variable lags. This much we know. How long depends on the state of the economy in question.

In 2001, the US got away with an unusually short recession helped by aggressive interest rate cuts and an expansionary fiscal policy. But in Japan in the early 1990s, and in Germany in the early part of this decade, it took ages for low interest rates to help the real economy.

One of the reasons was that those recessions were aggravated by crises in the financial sector itself. I fear that the US recession of 2008 will be similar in quality - though not necessarily in length and depth - to those in Japan and Germany, rather than to the US recession in 2001.

Interest rate cuts work their way through to the real economy by a number of transmission channels. During the 2001 recession in the US, the most important was housing credit. The rate cuts came at a time when the housing market was already booming. They turned the boom into a super-boom. Inflationary expectations were low. People expected interest rates to remain low. It was a great moment to take on extra debt, and this was precisely what Americans did.

The current US downturn could not be more different. House prices are falling, and have further to fall before reaching a more sustainable level (in terms of the price-to-rent ratios as well as several other measures). Core inflation has been above the Federal Reserve's comfort zone for some years now. There is no way that either the Fed, the Bank of England or the European Central Bank could, at this stage, create another housing boom even if they wanted to. Housing downturns have a strong dynamism, which is not easy to break. This is not a great time to take on debts, but to pay them off.

What about the other channels?

The corporate credit channel works more slowly. A company faced with an acute downturn in demand for its products is not going to start investing immediately when interest rates fall. At the very least, it would only do so if it expects variable interest rates to remain low for some time.

For that to happen, inflationary pressures have to be well contained, which they clearly are not.

Central banks only control the short end of the yield curve. Long-term rates are set in the financial markets. A cut in short-term interest rates that is not matched by falls in long-term interest rates will produce a steeper yield curve. That is quite normal in a recession, but an excessively steep yield curve could become a big problem for the central bank.

As this newspaper reported last week, the yield difference between the two-year and the 10-year US Treasury notes has reached 1.24 percentage points, the highest level in three years. Long-term interest rates could even go up if bond markets start to distrust the Fed's commitment to maintain a low rate of inflation.

I assume that this is only a matter of time. With core inflation stubbornly over 2 per cent, the current 10-year yield of 3.8 per cent seems a touch optimistic. So we might be seeing a simultaneous fall in short-term rates and a rise in long-term rates.

Cui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork. The steeper the yield curve, the greater the profits for banks, which make a living by borrowing at short interest rates and lending at long rates. If short rates are going down and long rates are going up, the banking sector is once again in a position to reap risk-free profits.

So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens who have been caught up in this maelstrom. The first, second and third beneficiaries of the Federal Reserve's pending helicopter drop of cash will be banks, not ordinary people or companies.

Eventually, of course, if one maintains an absurdly soft monetary policy for long enough, the cheap money will trickle through the financial sector to the rest of the economy, but at the cost of higher inflation and reduced purchasing power.

As time goes on, the financial sector's health will gradually improve. Eventually, the credit squeeze will be over - and the next irresponsible lending boom can begin.

It would therefore be unwise, to say the least, for policymakers to rely on monetary policy alone. By far the best policy response - though clearly limited in scope - is a well-targeted fiscal policy stimulus, a point recently made by Lawrence Summers, the former US Treasury secretary, in his Financial Times column.

The best stimulus package would be one that could be agreed today, enacted tomorrow, targeted specifically at subprime families, and was only temporary. Back in the real world, where politicians run fiscal policy, this is obviously not going to happen. While the usual pork-barrel-type stimulus package that is now shaping up in the US is far from ideal, it is still marginally better than letting the central bank sort out this mess alone.

There is no such thing as a standard policy response to all recessions. There are recessions like the one in 2001, which respond well to a monetary policy stimulus. But not all do. This is going to be one of those.


Copyright The Financial Times Limited 2008 (http://www.ft.com/cms/s/0/d11994fe-c7c2-11dc-a0b4-0000779fd2ac.html)

January 24th, 2008, 08:33 AM
Munchau IS a bit of Jeremiah...

January 24th, 2008, 10:30 AM
I thought he was a bullfrog... :confused:

February 7th, 2008, 02:07 AM
Ignoring his other politics, most of which I disagree with, isn't Huckabee right about the stimulus plan. It stimulates the economy of China, not the US. If we borrow money from China to give rebate checks to people to buy toys made in China, isn't that just stupid?

I think we should spend on infrastructure and education, like he said. Why is everyone else falling in line for this stupid proposal?

February 16th, 2008, 12:35 PM
Lessons on debt from George W. Bush
January 23, 2008
An electronic display shows news of an anticipated drop in stocks prices in Times Square in New York on Tuesday, Jan. 22, 2008. (Peter Morgan/Associated Press) As markets lurched and crashed this week and ordinary people around the world watched big chunks of their wealth slide into the abyss and their economies veer toward recession, President George W. Bush summoned reporters to the Roosevelt room at the White House to announce a new executive order.

Flanked by members of his cabinet, the president explained that he had come to the conclusion many Americans do not understand their personal finances: "How credit cards work, and how credit scores affect you, how you can benefit from a savings account or a bank account."

So, said Bush, he had just established a blue-ribbon panel to advise him on how to further financial literacy.

It was a moment of Forrest Gump clarity in a day of deafening accusations and frightening news.

Campaigning presidential candidates were demanding emergency relief for the new needy. Experts were shouting at one another on cable networks, debating whether recession has arrived. The U.S. Federal Reserve, desperate to thwart a disaster, had just cut the key interest rate three-quarters of a percentage point — the biggest one-time cut in a quarter century. The Bank of America had become the latest financial institution to announce billions in losses, mostly due to American homeowners defaulting on mortgages in the ongoing lending crisis.

Meanwhile, in the Roosevelt room, elaborating on his new plan to educate Americans, President Bush mused: "I just wonder how many people, when they bought a subprime mortgage, knew what they were getting into."

Days of wonder

It is hard to know if Bush was serious. But the answer, anyway, is self-evident: If the millions of Americans who can't make their ballooning mortgage payments today knew that they would be hopelessly indebted and facing foreclosure after just a few years of these new arrangements, most of them, presumably, wouldn't have signed. That too many Americans are spend-happy and unable to see past the next minimum payment on their multiple credit cards is pretty obvious, too.

According to the Federal Reserve, the country's central bank, American consumers collectively owe $2.5 trillion, not including mortgages. That is about $22,500 per household in unsecured debt, roughly $8,300 of which is a credit card balance. Nearly half the people in this country spend more than they earn.

But then, it isn't as if their president or, for that matter, the other branches of government in this country has set a much higher example.

Granted, this is a country that believes more than most in keeping the dead hand of government out of the marketplace, which is one of the reasons it has attracted so much of the world's investment wealth in the first place.

But even most fiscal conservatives believe government has a regulatory role, a duty, in fact, to protect citizens and investors from market predators. And as the American housing market became gradually unmoored from reality over the past several years, precious little regulation was in evidence.

Not a penny down

Just a couple of years ago, in fact, Americans were routinely buying houses without a penny down, sometimes actually borrowing more than the purchase price and pocketing the extra cash at closing.

If the borrower was willing to pay a few more interest points, shady mortgage brokers would see to it that no proof of income or wealth was necessary. Or they would conceal huge fees and steep rate increases down the road a bit from anxious borrowers, rushing them through what amounted to a con job.

Appraisers obligingly overestimated the value of a property being purchased, the better to conceal the shakiness of the deal.

Banks and mortgage companies, collecting a nice fee, looked the other way, too, and then sold the debt to Wall Street, which would bundle it and sell it to suckers on the international securities market, many of whom had been fooled by the triple-A rating bestowed by ratings agencies on the whole mess.

What's more, it was not as though this was all done in secret. The whole time, consumer advocates and local government officials and economists were banging on desks and uttering dire warnings.

Ira Rheingold of the National Association of Consumer Advocates called the whole process "insane." Jim Rokakis, the county treasurer in Cleveland, referred to it as "fraud on an industrial scale."

They may as well have been yelling into a toilet.

A game of risk

Under the stewardship of a president who believed unstintingly in the ability of the market to discipline itself, federal regulators did virtually nothing.

State governments were no better. When, back in 2002, the cities of Cleveland, Toledo and Dayton, Ohio, passed laws cracking down on predatory lending, the free-market warriors in the state legislature immediately reversed them.

Risk is the grease of the American engine, argued the politicians. It is not for the state to protect people from their investment decisions. Caveat emptor.

And now, as a staggering 1.5 million homeowners face the prospect of foreclosure, and the bilge from all that unrestrained greed slops over onto innocent investors here and abroad, sweat is running down the backs of the country's ruling class.

"Explain to us," John Spratt, a Democratic congressman, demanded last week of Federal Reserve Chairman Ben Bernanke, "how it is that a problem so pervasive and so serious was able to crop up, or arrive under the radar without being detected sooner by the regulators?"

Bernanke stared at the budget committee chairman for a moment, and chose diplomacy. "There was a combination of factors," he replied.

The education of a president

Bernanke, his hands tied by circumstances, has really only one weapon left in his arsenal — to cut interest rates, which in effect means to print more money and make it easier for banks to lend.

He has made it clear that he will cut rates again, if necessary, to keep business solvent. Whether it will work is not clear.

Politicians, meanwhile, know an election year nightmare when they see one. Bush is promising fast action (something beyond his new education program) in the form of a stimulation package in excess of $141 billion. Congress is racing to cooperate.

But what exactly is this fix proposed by a president who says too many of his co-citizens don't understand the impact of their own financial indebtedness? Much more government borrowing.

This from an administration that has financed five years of war in Iraq by borrowing from foreign investors while cutting taxes at home. The U.S. government, thanks to Bush and six years of a compliant Republican Congress, is now into the Chinese banks the way the Americans are into the credit card companies.

Spending money

In order to pacify fiscal conservatives, Bush is characterizing the proposed measure as "an economic growth package," consisting of, as he puts it, "giving American consumers back some of their own money."

Basically, though, these are cash handouts — perhaps as much as $800 to individual taxpayers, $1,600 to families, distributed in the desperate hope that consumers will follow their past pattern and immediately spend the money on something, anything, rather than put it against some of that colossal household debt.

Because Bush will not tolerate increasing taxes on the well-off, and isn't proposing spending cuts, there is only one place he can get the money, which is the same well he has gone to so many times before: "The president wants to borrow money from the international community," says James Thurber, a professor of government at American University in Washington, DC. "He doesn't state it that way, but he'll have to do it if he doesn't raise taxes or cut popular spending programs."

Bush's administration, says Thurber, "thinks it can go to heaven without dying, meaning that they can cut taxes and borrow and there will be no consequences."

As for the financial Wild West of the past few years, Thurber says: "It's a strong argument that we need government, and we need regulation, and that unrestricted laissez-faire capitalism doesn't work."

Back in the Roosevelt Room this week, Bush made no such concessions. He just talked, almost wistfully, of how he wants "America to be as hopeful a place as it can be. We want people owning assets. We want people investing. We want people owning homes.

"But oftentimes," he went on, "to be able to do so requires literacy when it comes to financial matters."

And so, by executive order, the education begins, if a tad late.

February 16th, 2008, 08:46 PM
don't worry ladies and gentlemen ,everything will be all right:D

March 21st, 2008, 04:01 PM
Paulson's Gift to His Bankster Buddies

Winding Up Bear

March 20, 2008
By MIKE WHITNEY (http://www.counterpunch.org/whitney03202008.html)

One picture tells the whole story. It's a photo of five grim looking men in gray suits staring ahead blankly like they were in the dock with Saddam awaiting sentencing. Every one of them looks downcast and dejected; shoulders rounded and jaws set. This is what desperation looks like, which is why the photo was kept off the front pages of the leading newspapers.

The group took no questions and, as far as the media was concerned, the meeting never happened. But it did happen; and it happened on Monday at the White House at 2PM. That's when President Bush convened the Working Group on Financial Markets, also known as the Plunge Protection Team, to explain their strategy for dealing with deteriorating conditions in the financial markets. The details of the meeting remain unknown, but judging by the sudden (and irrational) recovery in the stock market on Tuesday; their plan must have succeeded.

The Plunge Protection Team is a panel that includes Fed Chairman Ben Bernankee, Treasury Secretary Henry Paulson, Securities and Exchange Commission Chairman Christopher Cox, and acting Commodity Futures Trading Commission head Walter Lukken. According to John Crudele of the New York Post, the Plunge Protection Team's (PPT) objective is to redirect the stock market by ""buying market averages in the futures market, thus stabilizing the market as a whole."" In the event of a terrorist attack or a natural disaster, the group's activities could play an extremely positive role in saving the market from an unnecessary meltdown. However, direct intervention into supposedly "free markets" is less defensible when it is merely a matter of saving an over-leveraged banking system from its inevitable Day of Reckoning. And, yet, that appears to be the reason for the White House confab; to buy a little more time before the final explosion.

The psychology behind the PPT's activities is explained in greater detail by Robert McHugh Ph.D. who provides a description of how it works in his essay ""The Plunge Protection Team Indicator"":

The PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline, need to be prevented by a rally already in flight. To get that rally, the PPT's key component -- the Fed -- lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer's account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop. These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today's prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy -- and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, and sidelines money from Hedge Funds, Mutual funds and individuals' rushes in to join in the buying madness for several days and weeks as the rally gathers a life of its own. (Robert McHugh Ph.D., "The Plunge Protection Team Indicator")

The powers of the PPT are greatly exaggerated; eventually the liquidity they provide has to be drained from the system. The popular myth that the Fed simply creates as much money as it chooses and spreads it around like confetti; is pure rubbish. The Fed has very definite balance constraints. The system is not quite as rigged as many people imagine. According to Bloomberg News, the Fed has already depleted most of its resources:

The Fed has committed as much as 60 percent of the $709 billion in Treasury securities on its balance sheet to providing liquidity and opened the door to more with yesterday's decision to become a lender of last resort for the biggest Wall Street dealers." ("Bernanke May Run Low on Ammunition for Loans, Rates", Bloomberg)

The troubles in the credit markets and real estate are bigger than the Fed or the PPT; and they know it. The next step is massive government intervention; mortgage-rate freezes, bailouts and fiscal stimulus. Big government is back; Reaganism has gone full-circle. That doesn't mean that the PPT cannot have an important psychological affect in soothing jittery markets or stalling a system-wide collapse. It just means, that markets will eventually correct regardless of what anyone does to stop them. The sharp downturn in the financial markets is the result of unsustainable credit expansion that can't be fixed by the parlor tricks of the PPT. The rate at which financial institutions are deleveraging and destroying capital will inevitably trigger an economic crisis equal to the Great Depression. What is needed is strong leadership and a re-commitment to transparency, not "more of the same" low interest crack and financial hanky-panky. It's time to come clean with the public and admit we have a problem.

"Sucker rallies", like Tuesday's 400 point surge on Wall Street just helps to conceal the deeply rooted problems that need to be addressed before investor confidence can be restored. Blogger Rick Ackerman summed it up succinctly in last night's entry:

These psychotic, 400-point rallies in the Dow do not augur renewed confidence. They are being driven almost entirely by short-covering, and even the otherwise clueless news anchors are starting to dismiss them as meaningless. One of these days, moments after the last surviving bear's short position has been liquidated, stocks are going to fall so steeply that even the Plunge Protection Team will call for back-up. Then, the financial collapse that so many have been expecting will unfold in just a few days, with enough power to leave the global economy in ruins for a generation." (Rik's Piks Rick Ackerman)

Whether Ackerman's dire predictions materialize or not, there's no denying that the situation is getting worse by the day. In the last week alone, two major financial institutions, Carlyle Capital and Bear Stearns have either gone under or been bailed out wiping out tens of billions in market capitalization. These flameouts have increased the rate of the deflation adding to the already-prodigious losses from housing foreclosures, delinquent credit card debt, defaulting car loans, and the deleveraging in the hedge fund industry. Fortress America has sprung a leak, and capital is escaping in a torrent.

"One thing is for certain, we're in challenging times," Bush opined on Monday after meeting with his top economic aides. ""But we are on top of the situation."

That's comforting. Bush is all over it.

Tuesday's 75 basis point rate cut by the Fed is another sign of desperation. The Fed Funds rate is now 2 percentage points below the rate of inflation; a obvious attempt on Bernanke to reflate the equity bubble at the expense of the dollar. Is that why Wall Street was so jubilant; another savage blow to the currency?

The Fed's statement was as bleak as any they have ever released sounding more like passages from the Book of the Dead than minutes of the Federal Open Market Committee:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen .... uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today's policy action..should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain.

Wall Street rallied on the cheery news.

Also, on Tuesday, the battered investment banks began posting first quarter earnings which turned out to be better than expected. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. beat estimates which added to the stock market giddiness. Unfortunately, a careful reading of the reports, shows that things are not quite as they seem. The jubilation is unwarranted; it's just more smoke and mirrors.

"Lehman Brothers Holdings Inc. reported a 57% drop in fiscal first-quarter net income amid weakness in its fixed-income business, though results topped analysts' expectations." (Wall Street Journal)

The same was true of financial giant Goldman Sachs:

"Goldman Sachs Group Inc.'s fiscal first-quarter net income dropped 53% on $2 billion in losses on residential mortgages, credit products and investments ...The biggest Wall Street investment bank by market value reported net income of $1.51 billion, or $3.23 a share, for the quarter ended Feb. 29, compared to $3.2 billion, or $6.67 a share, a year earlier....Results included $1 billion in losses on residential mortgage loans and securities, and nearly $1 billion in losses on credit products and investment losses ..." (Wall Street Journal)

The bottom line is that both companies first quarter earnings dropped by more than a half in just one year alone while, at the same time, they booked heavy losses. That's hardly a reason for celebration. The major investment banks remain on the critical list because of the billions of dollars of toxic debt they still carry on their balance sheets. Consider industry leader Goldman Sachs, for example, which is sitting on a backlog of bad paper from the subprime/securitization debacle as well as an unknown amount of LBOs (Leveraged buyouts) and commercial real estate deals (CREs) that are heading south fast. Market analyst, Mark Gongloff, sheds a bit of light on the real condition of the big financials in his article ""Crunch Proves A Test of Faith For Street Strong"":

"All of the brokerage houses are highly leveraged, with a high ratio of assets to shareholders' equity, a sign they have used debt heavily to build up positions in hope of greater returns. Morgan Stanley, which will report Wednesday, had a leverage ratio of 32.6-to-1 at the end of last year, nearly as high as Bear's 32.8-to-1. Lehman was leveraged 30.7-to-1, and Merrill Lynch 27.8-to-1. And the would-be rock, Goldman? It was leveraged 26.2-to-1.""(""Crunch Proves A Test of Faith For Street Strong", WSJ)

Remember, Carlyle Capital was leveraged 32 to 1 ($22 billion equity) and went ""poof"" in a matter of days when it couldn't scrape together a measly $400 million for a margin call. How vulnerable are these other maxed-out players now that the credit bubble has popped and the whole system is quickly unwinding?

Not very safe, at all. As Gongloff points out:

"Based in part on numbers reported at the end of Bear's fourth quarter, estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days."

That's right; three days and it was over. Why would anyone think it will be different with these other equally-exposed banks? These institutions are basically insolvent now. The Federal Reserve is just trying to prop them up to maintain appearences. But it's a hopeless cause. As hyper-inflated assets are downgraded; structured investments and arcane hedges against default will continue to disintegrate and these profligate institutions will be crushed by a stampede of panicking investors. The flight to safety has already begun. Cash is king.

Look what has transpired just since Monday.

"Crude oil, copper and coffee led the biggest decline ever in commodities on speculation that a U.S. recession will stall demand for raw materials." (Bloomberg) All asset classes fall in a deflationary spiral, even commodities which many people thought would be spared. Not so. In fact, even gold has begun to retreat as hedge funds and other market participants are forced to relinquish their positions.

In other news, Reuters reports:

"The yield on U.S. 3-month Treasury bills fell below 1 percent on Monday to levels not seen in 50 years prompted by intense safety bids for cash spurred by the ongoing global credit crunch...Investors were pulling money out of stocks and even the booming commodity market even after the Federal Reserve conducted a fresh round of measures over the weekend to alleviate the credit crisis."

Here's another example of the "flight to safety" as investors recognize the warning signs of deflation. This trend is likely to intensify even though the Fed will continue to cut rates and real earnings on Treasuries will go negative. In another report from Reuters:

""The Chicago Board Options Exchange Volatility Index or VIX on Monday surged to its highest level in nearly two months as a fire sale of Bear Stearns and an emergency Federal Reserve cut in the discount rate reignited credit fears."

Fear is higher now than it has been in a long time. Option traders are loading up on index puts in the Standard & Poor's 500 index. The "Fear Gage, as it is called, is soaring to new heights as credit problems continue to mount and business begins to slow to a crawl.

And, perhaps most important of all:

"The cost of borrowing in dollars overnight rose by the most in at least seven years after the Federal Reserve's emergency cut in the discount interest rate stoked concern that credit losses are deepening....The London interbank offered rate, or Libor climbed 81 basis points to 3.86 percent, the British Bankers' Association said today. It was the biggest increase since at least January 2001. The comparable pound rate rose 28 basis points to 5.59 percent, the largest gain since Dec. 31, 2007." (Bloomberg)

This may sound like technical gibberish geared for market junkies, but it is critical for understanding the gravity of what is really going on. The Fed's rate cuts are not normalizing the lending between banks. In fact, the situation is actually deteriorating quite quickly. When banks don't lend to each other (because they are worried about getting their money back) the wheels of capitalism grind to a halt. The banks are the essential conduit for providing credit to the broader economy. If there's a slowdown in traffic, economic growth begins to slow immediatly. Presently, the banks are hoarding cash to cover the losses on their mortgage-backed investments and to shore up their skimpy capital reserves. As a result, consumer spending is sluggish and GDP is beginning to shrink.

"We know we're in a sharp (decline), and there's no doubt that the American people know that the economy has turned down sharply"," said Henry Paulson on NBC television on Sunday. "There's turbulence in our capital markets and it's been going on since August. We're looking for ways to work our way through it."

No kidding. But Paulson is clearly out of his depth. He's simply not the man to deal with a crisis of this magnitude. His only concern is bailing out his rich friends in the banking industry. The interests of workers and consumers are just brushed aside. Has anyone from the Dept of the Treasury (or the Fed) suggested a bailout for the 14,000 Bear Stearns employees who just lost not only their jobs but the entire retirement when the company was purchased by JP Morgan?

Of course, not. Because both Paulson and Bernanke take a class oriented approach to the problem that narrows their range of vision and limits their ability to pose viable remedies. They are unable to see the whole playing field. For example, Bernanke assumes that if he keeps cutting rates, he can reflate the equity bubble by stimulating consumer spending. But that is not going happen. First of all, the banks are not passing on the savings to customers. And, second, the banks are only lending to applicants with a flawless credit history. In other words, the Fed's cuts may be good for Bernanke and Paulson's buddies, but they do nothing for either the consumer or the broader economy. Also, as Michael Hudson notes in his latest article "Save the Economy, Dismantle the Empire (http://www.counterpunch.org/hudson03152008.html)" (counterpunch.org) the banks are taking the money they borrow from the Fed and investing it elsewhere:

"This week the Fed tried to reverse the plunge in asset prices by flooding the banking system with $200 billion of credit. Banks were allowed to turn their bad mortgage loans and other loans over to the Federal Reserve at par value (rather at just 20% "mark to market" prices). The Fed's cover story is that this infusion will enable the banks to resume lending to "get the economy moving again." But the banks are using the money to bet against the dollar. They are borrowing from the Fed at a low interest rate, and buying foreign euro-denominated bonds yielding a higher interest rate--and in the process, making a currency gain as the euro rises against dollar-denominated assets. The Fed thus is subsidizing capital flight, exacerbating inflation by making the price of imports (headed by oil and other raw materials) more expensive. These commodities are not more expensive to European buyers, but only to buyers paying in depreciated dollars."

The banksters are "buying foreign euro-denominated bonds" during an economic crisis in America? Whoa. Now there's an interesting take on patriotism.

The Fed's strategy has even failed to lower mortgage rates which are pinned to the 30-year Treasury and which has actually gone up since Bernanke began slashing rates. This inability to pass on the Fed's rate cuts to potential mortgage applicants ensures that the housing meltdown will continue unabated well into 2009 and, perhaps, 2010.

In the last few days, the Fed has provided $30 billion to buy up the least-liquid speculative debts of a privately-owned investment bank, Bear Stearns, which was leveraged at 32 to 1 and which will remain unsupervised by federal regulators. How does that address the underlying issues of the credit crunch? Are Bernanke and Paulson really trying to put the financial markets back on solid footing again or are they merely expressing their bank-centered bias?

That question was answered in an article on Tuesday in the Wall Street Journal which explained the real reasons behind the Bear bailout:

"The illusion was shattered Saturday morning, when Mr. Paulson was deluged by calls to his home from bank chief executives. They told him they worried the run on Bear would spread to other financial institutions. After several such calls, Mr. Paulson realized the Fed and Treasury had to get the J.P. Morgan deal done before the markets in Asia opened on late Sunday, New York time.

"It was just clear that this franchise was going to unravel if the deal wasn't done by the end of the weekend," Mr. Paulson said in an interview yesterday.'" ("The Week that Shook Wall Street", Wall Street Journal)

So all it took was a little nudge from his banking cohorts for Paulson to swing into action and firm up the deal. That says it all. The interests of the American people were never even considered. It was all choreographed to bail out the financial industry. No wonder so many people believe that the Federal Reserve and the US Treasury are merely an extension of the banking establishment. The Bear bailout proves it.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

March 22nd, 2008, 06:59 PM
Some good points in this article, but many of its conclusions are dubious.

First off, the Bear "bailout" was anything but. Every single one of its employees was left out to dry, as well as its shareholders. (That's another thing: Bear is certainly not privately-owned. It's a public company.) Golden parachute for the chairman and former CEO, Jimmy Cayne? No, sir: he lost over a billion dollars of stock value thanks to the JPMorgan deal.

And make no mistake about it: JPMorgan may have made a great play by stepping up to the plate. Indeed, it was pretty much the only major commercial bank with the financial soundness to do the deal. But they are saddled with a lot of potential liability, and they risk losing billions off it in the worst case scenario. As for the Fed's guarantee on $30B: again, a drop in the bucket. If Bear was leveraged 33:1 and had $36B in liquidity, you do the math: we're talking about nearly a trillion dollars in liability.

Most articles I've read from industry experts make the claim that the Fed's rate cuts won't do much good. And I agree: we need a thorough purging of bad assets. But what's often ignored is that, because of the crisis, many good assets are being undervalued. The Fed knows this: if they don't lower rates, these assets will only depreciate further, faster.

I wouldn't bet on the Euro too much either. Sure, it's doing well against the dollar now, but all the recent proclamations about the Euro zone having become detached from the sway of the American economy have proven false. Euro banks are in similar disarray: Soc-Gen, UBS, Northern Rock, and DB Industriebank just to name a few. Many of the same problems we face here will spread there as well. As for where all the money ends up going in the end? That's anyone's guess: China, India, treasuries, under the mattress?

Unless there is a widescale reworking of the structure of our financial markets, I don't see what the alternative is. Someone, please offer a solution, and stop just throwing out criticism.

March 27th, 2008, 10:08 AM
Despite Thunderclouds in the United States, Business Confidence Is Up in Europe

Published: March 27, 2008

FRANKFURT — Europe is shrugging off the thunderclouds in the United States, with new surveys on Wednesday showing rising business confidence in Germany, France and Belgium, while the president of the European Central Bank damped hopes for a cut in interest rates anytime soon.

Taken together, these developments seemed to turn an adage about trans-Atlantic economic relations on its head: When the United States catches a cold, does Europe even sneeze?

In truth, few public officials or economists expect Europe to escape the effects of a downturn in the United States. Financial markets here have been unsettled by the turmoil on the other side of the Atlantic as investors worry that European banks continue to have exposure to bad American mortgage debt.

But Europe’s broader economy is demonstrating startling resilience — not just to the high anxiety in the markets but to the swift rise of the euro, which, in theory anyway, burdens European exporters.

In Germany, a bellwether survey of 7,000 business people by the Ifo Institute for Economic Research found that sentiment improved in March for the third consecutive month. Exporters said they were more sanguine about their prospects, even after a month in which the euro skirted $1.60.

“We were surprised because there has been all this talk about the financial crisis and how it would affect Germany,” said Klaus Abberger, a senior economist at the Ifo Institute in Munich. “We had a surge in the euro, and yet the firms assessed their export situation as being very good.”

In France, the Insee survey of sentiment among manufacturers rose unexpectedly in March, as did the Belgian BNB monthly survey. Only Italy reported bad news: the ISAE index of business confidence fell in March, to its lowest levels in two years, largely because of a decline in orders.

Natacha Valla, an economist at Goldman Sachs in Paris, said the French survey indicated that French companies — not just German ones — were still competitive in the face of a buoyant currency.

These hopeful signs are likely to fortify the European Central Bank in its refusal to follow the recent rate cuts of the Federal Reserve. The bank’s president, Jean-Claude Trichet, said on Wednesday that cutting rates in response to the financial crisis would only stoke inflation.

“The current monetary policy stance will contribute to achieving our price-stability objective,” Mr. Trichet said at the European Parliament in Brussels, taking note of the optimism in Germany.

Mr. Trichet’s hawkish comments, economists said, suggest the European Central Bank will leave rates unchanged even beyond June, when many bank watchers had predicted it would join the Fed in relaxing policy.

The Bank of England echoed the European Central Bank in its reluctance to adopt emergency measures. In testimony before lawmakers in London, the bank’s governor, Mervyn A. King, warned about inflation, too, and said his bank wanted a “longer term” solution to the crisis.

While both central bankers tried to project a cool demeanor, Mr. Trichet compared the current turmoil to the oil shock of the 1970s and the Asian financial crisis. The Asian crisis, he said, provided lessons for how to respond to this disruption, chiefly the need for greater transparency.

German businesspeople may be optimistic, but its bankers remain a fragile lot. Deutsche Bank warned that further write-downs of assets, and the deterioration of the broader economy, meant that it could fall short of its target of pretax profits of 8.4 billion euros ($13.1 billion) in 2008.

Deutsche Bank’s chief executive, Josef Ackermann, recently stirred up a tempest when he called for state intervention to restore calm to the markets, saying he had lost faith in their “self-healing” power. He later said he was referring only to the American mortgage market.

The European Commission is also nervous about the broader economic fallout of the crisis. In a report issued Wednesday, it said Europe faced increased head winds because of the market turmoil, a weaker American economy, high oil prices and the rise of the euro against the dollar.

Europe’s growth declined to an annual rate of 2.2 percent in the fourth quarter of 2007, from 2.6 percent in the third quarter. Growth in exports dropped to 0.5 percent in the fourth quarter, from 2.1 percent in the previous quarter. Yet the commission still projects that exports will grow 5.3 percent in 2008, only modestly below their 5.8 percent growth rate last year.

“Europe’s resilience has improved, thanks to structural reforms over the last decade,” Klaus P. Regling, the director-general of economic and financial affairs for the commission, said in a roundtable interview.

Mr. Regling discounted the once-popular theory that Europe had decoupled from the United States. But he said several factors were cushioning it from a trans-Atlantic shock — not least the euro itself, which he said gives its 15 member states more stability in dealing with the crisis.

“The vulnerability of Europe is less than it used to be,” said Mr. Regling, a German economist, “and therefore, we are optimistic that we can weather the problems better than in the past.”

April 14th, 2008, 07:35 AM
IRS eases pressure on Big U.S. companies, study says

International Herald Tribune (http://www.iht.com/articles/2008/04/13/business/irs.php)
By Lynnley Browning
April 13, 2008

NEW YORK: Most Americans dread tax season. But corporate America seems to have less to fear from the Internal Revenue Service than it used to, according to a new study.

The IRS's scrutiny of the biggest U.S. companies is running at a 20-year low, according to the study, conducted by Transactional Records Access Clearinghouse, or TRAC, a research group affiliated with Syracuse University.

The study, made public Sunday, points to "a historic collapse in audits." It found that major corporations - defined as those with assets of at least $250 million - have about a one in four chance of being audited, down from about three in four in 1990.

Individuals have about a 10 percent chance of being audited, more than double the odds in 2000, according to the IRS.

The study's findings stand in sharp contrast to the tough talk coming out of the IRS in recent years. The report suggests that the agency is shifting its focus away from big corporations to small companies, private partnerships and other private entities, a move that tax lawyers said was consistent with trends they were seeing.

But IRS officials, who reviewed the report prior to its release, said Friday that TRAC misinterpreted a basic shift in corporate America in recent years. Companies of all sizes, as well as wealthy individuals, have embraced certain partnerships and other opaque entities in an effort to minimize taxes, the officials said.

Sometimes those arrangements cross the line into tax abuse. Because large companies increasingly use such partnerships, the IRS has stepped up scrutiny of these entities.

"These aren't mom-and-pop grocery stores we're auditing," said Barry Shott, a deputy IRS commissioner.

The IRS has not reduced its scrutiny of large corporations, he said. Instead, it is focusing on the private partnerships some of these companies use to avoid paying taxes.

Shott said the IRS supplied data to TRAC but that the group, which gathers information from government agencies under the Freedom of Information Act, misinterpreted it. TRAC, which has gone to court to force the IRS to turn over more detailed data on audits, stood by its findings.

While the report singled out the IRS's increased focus on partnerships, it also said that the agency was increasingly targeting smaller corporations, or those with no more than $50 million in assets. Such companies require less time and money to investigate, something that is important to the IRS, which has long complained that it is underfinanced. Such investigations, however, typically bring in fewer unpaid tax dollars than audits of large corporations.

"I'm still trying to find my jaw on the ground from the finding that audit rates for the big boys are plummeting," said Dean Zerbe, the national managing director of Alliant Group, a tax planning company. While corporations account for a small percentage of all taxes paid to the U.S. government, their share of the total has been rising in recent years.

Last year, corporations of all sizes accounted for nearly 23 percent of all federal income taxes paid, or around $395 billion, according to previously-released data from TRAC. That is up significantly from 2001, when corporations accounted for 13.7 percent of all taxes paid, an all-time low. Individuals paid the rest.

The IRS is bringing in more money from corporations of all sizes through its audits. Last year it brought in over $59 billion in unpaid tax revenues, according to statistics from the agency. That is nearly double the level of 1998 and is consistent with a steady climb since then.

Copyright © 2008 the International Herald Tribune

August 8th, 2008, 12:20 PM
Governments caused the credit crisis, but capitalism gets the blame

By Ambrose Evans-Pritchard
Last Updated: 8:31am BST 08/08/2008 (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/08/ccrisis108.xml)

State error led banks to ignore the lessons of history and overdose on too-cheap money, writes Ambrose Evans-Pritchard

Three years ago, the world's top watchdog warned that the global economy was veering out of control. Defending orthodoxy against the easy debt policies of the Greenspan era, the Bank for International Settlements said interest rates were being held too low for safety in most of the mature economies.

America had embarked on an unprecedented experiment. The US savings rate had fallen to near zero for the first time since the Slump. The current account deficit had reached levels that were incompatible with the dollar's role as the anchor of the global system.

The rising powers of Asia were preventing adjustment by holding down their currencies, and flooding the world with cheap credit in the process. Incipient bubbles were ubiquitous. "Most industrial countries are showing symptoms of over-heating in the housing market," it said.

New-fangled securities were allowing banks to take "highly leveraged positions". It was unclear how these untested inventions would "handle a string of credit blow-ups".

"One simply cannot ignore the number of indicators that are now simultaneously exhibiting marked deviations," concluded the BIS. That was in June 2005.

Regrettably, governments did exactly that. They ignored manifest risks. Real interest rates were held near or below zero in the US and a large arc of Europe until well into 2006.

By then, the damage was done. US housing had succumbed to full-fledged mania. Variants were emerging - later in the cycle - across the Anglo-Saxon world, the Baltic, Club Med, and Eastern Europe.

What occurred was a fatal cocktail, a mix of too much and too little government intervention at the same time. Bureaucrats (central banks) held down the price of credit: other bureaucrats (regulators) turned a blind eye to the excesses that cheap money caused in mortgages and the "shadow banking system" - that $3 trillion nexus of structured credit. Northern Rock continued to offer 125pc mortgages. Honey-trap "teaser" loans continued to ensnare Americans.

Former Federal Reserve chief Alan Greenspan now says the world faces a "once or twice in a century event". Faith in the financial system has been called into question. Taxpayers will have to rescue more banks. Missing is any hint of apology for his role in incubating this crisis as monetary overlord for 20 years.

Where did it all go wrong? One could start by looking at the trajectory of total US debt, up from 130pc to 350pc of GDP since 1982. "We've had a 30-year leveraging up of America, ending in an unchecked orgy," said Charles Dumas, from Lombard Street Research.

"The final straw was the Fed's hopelessly slow tightening from 2004 onwards. There was no excuse for the interest rates of 1pc, and then they went through this ludicrous metronome dance of quarter-point hikes," he said.

Mr Dumas said the fuel for the third-stage blast of the US debt rocket came from Asia's "savings glut". China, Taiwan, Vietnam and other exporters have built up huge surpluses by holding down their currencies through dollar pegs or "dirty floats".

Together with Russia and the Mid-East petro-powers, they have accumulated a war chest of some $6 trillion in reserves. This must be recycled into foreign assets. Most went into US and European bonds, pushing down the cost of long-term capital for the entire global system.

On top of this, roughly $250bn a year fled zero-interest rates in Japan to chase better returns abroad through the "carry trade". Japan's emergency stimulus leaked everywhere.

The ensuing bond bubble depressed yields for pension funds and insurers obliged to buy "AAA" assets, leaving them struggling to match their long-term liabilities. They were easy prey when the sharks came along with sub-prime debt "sliced and diced" into irresistible blocks of "AAA" securities, promising high yields.

Rules made matters worse. Professor Peter Spencer, from York University, said the Basle code on capital adequacy ratios caused a perverse side-effect. "By making banks raise capital against their balance sheets, it gave them a strong incentive to move off balance sheets," he said.

The Fed could have done a great deal to offset the tsunami of Asian money by squeezing liquidity at home. It chose not to do so. Mr Greenspan and his protégé, Ben Bernanke, saw no need to act because inflation was tamed.

Cheap Asian goods flooded the world, keeping a lid on inflation in the West. It lulled the central banking fraternity into a false sense of security. As they slept, the excess money found its way into asset booms. This was the "Great Error".

e Stiglitz said the new "fad" of inflation-targeting had led policymakers astray. The dogma fails to distinguish between different causes of inflation. It should be ditched. "My sympathies go to the unfortunate citizens of those countries that implement inflation targeting," he said. Britain is one of them. So are Australia, New Zealand, Sweden, and Iceland. All have property bubbles.

Mr Greenspan argued that it was not for central banks to steer asset prices. In reality, he slashed rates to rescue banks during the Russian default/LTCM crisis in 1998. He slashed them even further after the dotcom bust. Yet he always let speculative booms run their course.

This was the "Greenspan Put". Markets believed they could count on welfare for Wall Street in the end. The culture of moral hazard degenerated by degrees, culminating in a near-total disregard for risk by 2007.

The liquidation purge needed at the end of every cycle was cut short, leaving the toxins in the system. Each upswing was built on more deformed foundations. An addiction to low real interest insidiously drew down prosperity from the future - "intertemporal misallocation" in BIS lingo. The future finally arrived in 2007.

The Greenspan-Bernanke assumption was that the Fed could "clean up" after bubbles had burst. This was a risky view in light of what followed the US bubble in the 1920s and Japan's Nikkei bubble in the 1980s. It derives from the Milton Friedman doctrine that the slumps can always be avoided by monetary stimulus à l'outrance (to the utmost). If only life were so simple.

The Fed clearly had no inkling of the shock that was about to hit them last year. Mr Bernanke said on June 5 that " the troubles in the sub-prime sector seem unlikely to spill over to the broader economy or the financial system". Losses would be $50bn to $100bn. (The IMF now says nearly $1,000bn).

At the Fed's early August meeting, it issued a hawkish statement, seemingly unaware that Countrywide - America's top mortgage underwriter - had just warned house price falls were reaching "levels not seen since the Great Depression". Markets took matters into their own hands.

"The Fed was in this mental state [that] it was just a short-term problem," said Jim O'Neill, global strategist at Goldman Sachs. "Their biggest mistake was that they failed to realise how far the real estate market would fall."

Mr Bernanke has been playing catch-up ever since. He rushed through the most dramatic set of rates cuts in Fed history. He invoked Article 13 (3) of its charter, the Depression-era clause allowing it to take on direct liabilities, starting with $30bn of Bear Stearns debt. The US government bailed out Fannie Mae and Freddie Mac. This is a de facto nationalisation of the world's two biggest financial institutions.

Critics say the rescues have failed. One can only ask what would have happened if nothing had been done. There is no "solution" to this crisis. The task now is to keep the ship afloat as debt defaults run their awful course.

It will be a long work-out. Japan has suffered its Lost Decade, with the worst pain in the second half. Don't assume the Anglo-Saxons and Club Med will get off more lightly. Japan started its descent as top creditor, brimming with reserves and savings. Westerners go down empty.

Henceforth, we must design out asset bubbles. The BIS suggests a credit speed limit of sorts. Old-fashioned monetarists say the debacle could have been avoided if we had paid more heed to the M3 and M4 money supply. These aggregates blew the whistle three years ago.

At root, this crisis was caused by state error. Governments and economic ideologies rigged the system in favour of debt. City and Wall Street banks were pushed into behaving with reckless abandon. They took part shamelessly, of course. But their antics were merely symptoms of a deeper problem.

Needless to say, this is not the perception in North America or Europe. It already looks as if the political response will be a massive assault on the workings of the free market. Socialism is coming back. One wants to weep.


IMO, we are seeing a new socialist/facist/corporatist/mercantilist alignment of business/industry as a way to try to compete against (in quasi-capitalist terms) China's brand of totalitarian/communist/state-sponsored capitalism.

Rather than believe in the fundamentals of capitalism, we've nationalized the credit markets to such a degree that Wall Street is essentially a Fed protectorate. All short-term and increasingly long-term credit is from the US Treasury, not real assets with any stable calculable value, but rather shares of recirculated debt masquerading as GNP.

If we think of a business cycle as a game of musical chairs with credit being chairs and players being borrowers; Greenspan's easy money policies kept bringing in more chairs -- so that when the music stopped some were still empty. This encouraged more players to enter the game. But when players began to outnumber the chairs, rather than stop the music and deny some players, the music was kept on while chairs were removed. If the music were stopped, a lot of players would be stranded -- so to mask this fact special short term imaginary loaner chairs (liquidity injections) are brought in seconds before the music stops, placed under certain selected players and immediately taken away once the music starts again.

How many real chairs are still standing? We aren't allowed to find out because it might discourage players -- and what's a game without players?

August 19th, 2008, 12:30 PM
'America's Outrageous War Economy!'
Pentagon can't find $2.3 trillion, wasting trillions on 'national defense'

By Paul B. Farrell, MarketWatch
Last update: 7:27 p.m. EDT Aug. 18, 2008
ARROYO GRANDE, Calif. (MarketWatch) (http://www.marketwatch.com/news/story/why-we-love-americas-outrageous/story.aspx?guid=%7B0D31C880%2D32CD%2D4BA1%2D8133%2 D329EA57CB069%7D) -- Yes, America's economy is a war economy. Not a "manufacturing" economy. Not an "agricultural" economy. Nor a "service" economy. Not even a "consumer" economy.

Seriously, I looked into your eyes, America, saw deep into your soul. So let's get honest and officially call it "America's Outrageous War Economy." Admit it: we secretly love our war economy. And that's the answer to Jim Grant's thought-provoking question last month in the Wall Street Journal -- "Why No Outrage? (http://online.wsj.com/public/article_print/SB121642367125066615.html)"

There really is only one answer: Deep inside we love war. We want war. Need it. Relish it. Thrive on war. War is in our genes, deep in our DNA. War excites our economic brain. War drives our entrepreneurial spirit. War thrills the American soul. Oh just admit it, we have a love affair with war. We love "America's Outrageous War Economy."

Americans passively zone out playing video war games. We nod at 90-second news clips of Afghan war casualties and collateral damage in Georgia. We laugh at Jon Stewart's dark comedic news and Ben Stiller's new war spoof "Tropic Thunder" ... all the while silently, by default, we're cheering on our leaders as they aggressively expand "America's Outrageous War Economy," a relentless machine that needs a steady diet of war after war, feeding on itself, consuming our values, always on the edge of self-destruction.

Why else are Americans so eager and willing to surrender 54% of their tax dollars to a war machine, which consumes 47% of the world's total military budgets?

Why are there more civilian mercenaries working for no-bid private war contractors than the total number of enlisted military in Iraq (180,000 to 160,000), at an added cost to taxpayers in excess of $200 billion and climbing daily?

Why do we shake our collective heads "yes" when our commander-in-chief proudly tells us he is a "war president;" and his party's presidential candidate chants "bomb, bomb, bomb Iran," as if "war" is a celebrity hit song?
Why do our spineless Democrats let an incompetent, blundering executive branch hide hundreds of billions of war costs in sneaky "supplemental appropriations" that are more crooked than Enron's off-balance-sheet deals?
Why have Washington's 537 elected leaders turned the governance of the American economy over to 42,000 greedy self-interest lobbyists?
And why earlier this year did our "support-our-troops" "war president" resist a new GI Bill because, as he said, his military might quit and go to college rather than re-enlist in his war; now we continue paying the Pentagon's warriors huge $100,000-plus bonuses to re-up so they can keep expanding "America's Outrageous War Economy?" Why? Because we secretly love war!

We've lost our moral compass: The contrast between today's leaders and the 56 signers of the Declaration of Independence in 1776 shocks our conscience. Today war greed trumps morals. During the Revolutionary War our leaders risked their lives and fortunes; many lost both.

Today it's the opposite: Too often our leaders' main goal is not public service but a ticket to building a personal fortune in the new "America's Outrageous War Economy," often by simply becoming a high-priced lobbyist.

Ultimately, the price of our greed may be the fulfillment of Kevin Phillips' warning in "Wealth and Democracy (http://www.amazon.com/Wealth-Democracy-Political-History-American/dp/0767905342):" "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."

'National defense' a propaganda slogan selling a war economy?

But wait, you ask: Isn't our $1.4 trillion war budget essential for "national defense" and "homeland security?" Don't we have to protect ourselves?

Sorry folks, but our leaders have degraded those honored principles to advertising slogans. They're little more than flag-waving excuses used by neocon war hawks to disguise the buildup of private fortunes in "America's Outrageous War Economy."

America may be a ticking time bomb, but we are threatened more by enemies within than external terrorists, by ideological fanatics on the left and the right. Most of all, we are under attack by our elected leaders who are motivated more by pure greed than ideology. They terrorize us, brainwashing us into passively letting them steal our money to finance "America's Outrageous War Economy," the ultimate "black hole" of corruption and trickle-up economics.

You think I'm kidding? I'm maybe too harsh? Sorry but others are far more brutal. Listen to the ideologies and realities eating at America's soul.

1. Our toxic 'war within' is threatening America's soul

How powerful is the Pentagon's war machine? Trillions in dollars. But worse yet: Their mindset is now locked deep in our DNA, in our collective conscience, in America's soul. Our love of war is enshrined in the writings of neocon war hawks like Norman Podoretz, who warns the Iraq War was the launching of "World War IV: The Long Struggle Against Islamofascism (http://antiwar.com/scheuer/?articleid=11670)," a reminder that we could be occupying Iraq for a hundred years. His WW IV also reminded us of the coming apocalyptic end-of-days "war of civilizations" predicted by religious leaders in both Christian and Islamic worlds two years ago.

In contrast, this ideology has been challenged in works like Craig Unger's "American Armageddon: How the Delusions of the Neoconservatives and the Christian Right Triggered the Descent of America -- and Still Imperil Our Future. (http://www.amazon.ca/American-Armageddon-Delusions-Neoconservatives-America/dp/0743280768)"

Unfortunately, neither threat can be dismissed as "all in our minds" nor as merely ideological rhetoric. Trillions of tax dollars are in fact being spent to keep the Pentagon war machine aggressively planning and expanding wars decades in advance, including spending billions on propaganda brainwashing naïve Americans into co-signing "America's Outrageous War Economy." Yes, they really love war, but that "love" is toxic for America's soul.

2. America's war economy financed on blank checks to greedy

Read Nobel Economist Joseph Stiglitz and Harvard professor Linda Bilmes' "$3 Trillion War (http://www.democracynow.org/2008/2/29/exclusive_the_three_trillion_dollar_war)." They show how our government's deceitful leaders are secretly hiding the real long-term costs of the Iraq War, which was originally sold to the American taxpayer with a $50 billion price tag and funded out of oil revenues.

But add in all the lifetime veterans' health benefits, equipment placement costs, increased homeland security and interest on new federal debt, and suddenly taxpayers got a $3 trillion war tab!

3. America's war economy has no idea where its money goes

Read Portfolio magazine's special report "The Pentagon's $1 Trillion Problem (http://www.portfolio.com/news-markets/national-news/portfolio/2008/04/14/Pentagons-Accounting-Mess)." The Pentagon's 2007 budget of $440 billion included $16 billion to operate and upgrade its financial system. Unfortunately "the defense department has spent billions to fix its antiquated financial systems still has no idea where its money goes."

And it gets worse: Back "in 2000, Defense's inspector general told Congress that his auditors stopped counting after finding $2.3 trillion in unsupported entries." Yikes, our war machine has no records for $2.3 trillion! How can we trust anything they say?

[B]4. America's war economy is totally 'unmanageable'

For decades Washington has been waving that "national defense" flag, to force the public into supporting "America's Outrageous War Economy." Read John Alic's "Trillions for Military Technology: How the Pentagon Innovates and Why It Costs So Much. (http://www.amazon.com/Trillions-Military-Technology-Pentagon-Innovates/dp/1403984263)"

A former Congressional Office of Technology Assessment staffer, he explains why weapon systems cost the Pentagon so much, "why it takes decades to get them into production even as innovation in the civilian economy becomes ever more frenetic and why some of those weapons don't work very well despite expenditures of many billions of dollars," and how "the internal politics of the armed services make weapons acquisition almost unmanageable." Yes, the Pentagon wastes trillions planning its wars well in advance.

Comments? Tell us: (http://www.marketwatch.com/news/story/why-we-love-americas-outrageous/story.aspx?guid=%7B0D31C880%2D32CD%2D4BA1%2D8133%2 D329EA57CB069%7D#comments) What will it take to wake up America, get citizens, investors, anybody mad at "America's Outrageous War Economy?"

Why don't you rebel? Will the outrage come too late ... after this massive war bubble explodes in our faces?